4/26/2020 Plan: Two trade ideas, one for more aggressive traders, one for more conservative. Volatility has continued to come down some as the market continues to grind higher. “Everyone” is expecting us to drop again, but the market has been resilient recently.
4/26/2020 Plan (continued):
- DAL – sell 2 8 May 20/18 put spreads for 0.30. This is a more aggressive trade as airlines have taken a huge hit, with Very little travel going on. 19.1 was the recent low and Delta is receiving government assistance. One can reduce size or simply pass if they want to remain conservative.
- TREX – sell 15 May 60/55 put spread for 0.40. While this includes earnings, it is more than 2x outside the expected move.
- Prices are as of market close 4/24/2020, 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
4/27/2020 Entry:
Unfortunately we did not fill the TREX position early in the week and it had a big move up. For those that did catch it, an early close could book a quick win.
DAL was filled for 0.26 for another week out, 15 May.
5/1/2020 Update:
DAL could have been taken off for most of the weak for a nice profit. Even with the market’s decline on Thursday and Friday, the position is still solidly profitable.
5/15/2020 Update/Exit(?):
This trade offers our traders a lot to learn from. As mentioned previously, this trade could have been taken off numerous times for a profit. As many are part time traders, it could be removed during either of the two weekly trading days – Monday or Friday (or optionally during a break Tuesday through Thursday).
In addition, one could have simply used the “set it and forget it” approach, which is certainly a core tenet of the part time trading approach by keeping our position sizes small.
DAL closed at 19.19 and if one simply waited until the last minute to close, they would pay 0.81 cents. Combining with our credit of 0.26, that is a 0.55 loss for each put spread. Certainly not an ideal result, but it is important to remember that all of our trades will not be winners.
Note that we have additional options as well for managing this position:
- Roll to the same strikes next week – The 22 May 20/18 put spread can be sold for 0.92. If it expires worthless, we will have a net profit across both trades of 0.37, still a terrific return in this period of time for the risk. This is a good choice if you are Bullish on DAL over the next week and believe it will end up higher than 20.
- Roll down the strikes next week – the 22 May 19/17 put spread can be sold for 0.58. If DAL ends above 19 next week, the overall profit is 0.03, which is not a terrific return, but it is an improvement over a 0.55 loss!
- Accept ownership of the shares and sell covered calls against it. We would be long at an equivalent of 19.74 and can sell calls against it. If you are a bit bullish, the 20 call can be sold next week for 0.57. If called away, a profit of 0.83, which is a very nice return. If you are neutral or a bit bearish, the 19 call can be sold for $1, which would result in a profit of 0.26 – still a decent return and a much higher probability that the shares are called away
One of the amazing things about options is that you have numerous options (sorry!) for managing your trades, even straight forward put spreads. Given the different choices, we’ll leave this trade open and follow them to continue the education.
Questions? As always Silver members get unlimited priority support on trades – email us at any time. Bronze members can continue to email or reach out on Facebook or Twitter and questions will be answered on a first come first serve basis.
5/22/2020 – Update:
What a great week for our position in DAL closing at 22.69! You made a nice return regardless of how you played it, let’s cover the 3 approaches discussed last week, how they performed and add another option that one can consider.
- If you rolled to the same strikes at the end of last week, you collected 0.92 and made 0.37 between last week’s close and this week.
- If you rolled down at the end of last week, you essentially broke even, collecting 0.03 total
- If you sold a covered call at the end of last week, you made 0.83 or 0.26 depending on the strike
What if you didn’t do Anything at the end of last week and took assignment of the shares and Didn’t sell the call?
You had a nice surprise on Monday as the market shot up, taking DAL with it. Delta Airlines opened at 20.91, and closed almost $1 higher. Delta mostly climbed during the week and you could have simply sold the shares taking in a nice profit from 0.55 to 3.68 based on the low and high for the week!
Another approach would be to sell a covered call at the beginning of the week – with the higher underlying value, you would get even more for the calls you sold.
We certainly can’t count on a huge rally every Monday, but we had a plan going into the session as outlined last week and we were ready to take advantage of the move based on our risk tolerance. We went from a 0.55 loss per spread to a winner. If you waited until last minute on the 15th and rolled to 19/17, you made 0.03 per spread. If you waited until this past Monday you made quite a bit.
Personally, I simply exited the shares on Monday at lunch at 21.45 to clear the position from my books – really no ‘wrong’ way to trade it as it turns out. 0.26 on the initial trade plus 1.45 on the shares for a total of 1.71 per spread or $342 profit. Note that the risk on the trade increased from only $348 on the initial two spreads to $3948 for the long shares ($20 share price * 200 minus $52 initial credits). This total loss would be if DAL went bankrupt. If you held the shares throughout the week or sold covered calls, your results were quite a bit better!
Questions? As always Silver members get unlimited priority support on trades – email us at any time. Bronze members can continue to email or reach out on Facebook or Twitter and questions will be answered on a first come first serve basis.
