Trade update for O’Reilly Automotive

I posted a September option plan earlier in the week here and have received several questions today surrounding where this trade stands now. To review, here is the excerpt from the earlier blog post on $ORLY:

Let’s break this except above down to the components:

  • I am short the stock from $84.2
  • I am short the September 80 Put
  • I am long the September 85 Call

This Bear Collar was put on for a credit of $.50 on 9/14/2012. I was anticipating some action due to $AZO earnings in the pre-market and so was up early to go to battle.

$ORLY did breach the $80 level in pre-market but Dip Buyers showed up and price started to move up by 8:30 EST. I elected to cover the short stock position at $79.20 to book a $5 gain. Here are some of my thoughts from this morning posted on the StockTwits stream for $ORLY:

Here are where the questions center around the switch from a Bear Collar to a R/R (Risk Reversal). Here is the simple answer:

Once I covered the short stock piece of the trade, this left me with an uncovered short Put at the 80 strike and a long 85 Call for September – a traditional Risk Reversal option trade.

Hope that helps you understand how an option trade can morph like that.

Here is a current 5 minute chart showing how today’s action has played out:

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