3/01/2020 Plan: For most traders, the recommendation is to take the week off. The S&P 500 lost 11.49% last week, a very steep 1 week decline that wiped out a lot of profits for long-only investors and led to margin calls for numerous traders that thought the bull market would never end. The market (which at Option Salary we mean the S&P, not the Dow) is now down 8.56% on the year. Option Salary trades for 2020 remain Profitable overall, with a 2% gain on the dollars risked. Even assuming a full loss (likely) on a recent BA trade, we’ll still be up on the year. While never guaranteed, beating the market let alone being profitable in a down market is terrific.
3/1/2020 Plan (continued): Friday ended the day with a strong move upward that continued in after hours trading. If this follows through on Monday and you accept higher volatility in your results, recommend a Discover (Ticker: DFS) 60/58 put spread currently priced at 0.45. Note that spreads were very wide at the close and it is likely that the strikes and potentially expiration will change.
- We sell the 6 MAR DFS 60/58 for 0.45 two times
- Intent is to hold until expiration or remove for 0.10 on a strong move up.
- Prices are as of market close 2/28/2020, actual fill and strikes may differ depending on Monday open, post will be updated accordingly
- All trades are for educational purposes and do not constitute advice
3/2/2020 Entry: We sell the 6 MAR 62/60 for 0.35. As a reminder, with the market swinging 3%/day, this type of trade is riskier than normal.
3/6/2020 Exit: The options expired worthless at the end of the week, taking in the full $35 of premium, for a 21% return on risk.
