Trade: DG bull put spread

Trade:
Sell May 22.5 Puts - 8 contracts at .30 each
Buy May 20 Puts - 8 Conttracts at .15 each
Resulting in a bull put spread with a limit price of .15/contract.

Analysis:
Dollar General options are trading with an average implied volatilities of around 36%. That is 12% higher than the average 20-day and 30-day historical volatility. The reason for this spread is that DG is about to announce earnings in a couple of days. Once earnings are announced, I believe IV will drop significantly, devaluing the short puts.

From an EW perspective DG is beginning wave 3 up and if the earnings are positive, the wave could continue upwards for a while.

If my EW theory is wrong, I have found very strong Fibonacci support at $24.30 and at $23.9. I highly doubt that DG will be able to break both those support levels even if earnings are poor. That is why I have picked strikes well below those levels.

Profit/Loss Expectations:
If I hold this trade to expiration, I can expect to make approximately $96 or 5% on Margin requirements (after commission) in under 60 days. Annualized, that is approximately 40%. I will achieve this profit at any price above $22.50 and there is a 73% chance of this scenario.

If I hold the trade until expiration and the price closes below $20, I will have the maximum loss of $1880. There is a 10% chance of this scenario.

Trade Management Plan:
If the price breaks upwards or keeps movings sideways after the earnings announcement, I will sit back and let the options expire after 53 days.

If the price breaks downward and below $23.20 (just below another Fibonacci level), I will exit the position with ~$400 loss after waiting a couple of days to see if IV falls. If at anytime my overall loss reaches $800 (~stock price at 21.20), I will exit the position immediately.

-Wown
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