Selling Lyft call spreads

When was the last time you took an Uber? Probably before the pandemic… How about a Lyft? I don’t remember either. A clear number two in the ride sharing industry, with riding volumes down, and the recent rally slowing down, this is a reasonable time to put on some bearish trades. With implied volatility high, naked puts remain expensive. To help mitigate the expense, consider long put spreads or short call spreads.

On 3/30/2020, I sold 32/34 call spreads in LYFT expiring on 4/9/2020 (Markets are closed on 4/10/2020) for a 0.24 credit.

The market trended down for much of the week with Lyft following the broader market. It fell so much, that I put an order out to buy back the long options for 0.02, which was accepted near the open on Thursday morning:

Results – 0.22 credit in 3 days per spread, or 12.5% profit against the risk. The long leg is still open, which I could I leave on as a lottery ticket if there is an Enormous rally. Alternatively a small pop-in the stock may allow me to take it off for a couple bucks. It is currently at 0.01/0.08. With today’s low commissions, I could squeeze a little more profit out of the trade even at the current bid.

With any trade, one needs to start with an opinion, then craft the trade around that opinion. With the recent bear market rally starting to stall, I am bearish on the market near term (I remain a LONG term bull). This trade combined an overall view of the macro market with a call on a stock that I expect to suffer during the pandemic and resulted in a quick profit and an ability to re-allocate capital to the next trade, sooner than expected.

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Just want a break from the market and the pandemic? I’ve been catching up on some movies and TV series as a way to unwind. This too shall pass and this recommendation reminds us that others have had it much worse! Check out a tremendous film, 1917 and support Option Salary’s free content:

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