7/12/2020 Plan: Two ideas this week – an ETF and a follow-up from a recent trade: – Energy Select Sector SPDR (Ticker: XLE) and Walgreens Boots Alliance (Ticker: WBA).
7/12/2020 Plan (continued):
- XLE – Sell 2 of the 14 August 31/29 put spread for 0.30 or if you want to go long the sector, sell the 31 put for 0.63
- WBA – Sell 2 of the 21 August 35/32.5 put spread for 0.26
- Prices are as of market close 7/10/2020, 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
- As always, reach out with any questions!
7/12/2020 Commentary:
These trades are both bullish – pick one or the other or both. From a sizing perspective if you do both, you can lower the spreads to 1 each, depending on your account size. You receive some diversification given they are different industries, but if the overall market drops significantly, correlation tends to increase.
With XLE, you’ll see that realized volatility has dropped, yet implied volatility has stayed close to the same level over the last week. It’s been a few months since XLE was below 31 and our assumption is that it can stay above this level for another 4 weeks. Spreads are wide in this ETF for this expiration. As usual limit orders will be used to make sure we fill at a desired price.
We just exited a bearish call spread in WBA and now we look at a put spread far OTM. Walgreens didn’t go below 35, even at the worst levels in March. The assumption is that WBA doesn’t hit new lows in the next ~5 weeks. Even with surging cases, there should be some support for essential businesses like WBA. The plan is to get at least 0.25 for this spread or we will pass.
7/13/2020 Entry:
XLE put spread available at a lower entry of 0.26
WBA put spread entry at 0.32 (higher than plan)
7/19/2020 Update:
After a small run-up this week, our XLE put spread is now worth about half what we sold it for and can be closed for a quick gain or held to try and extract more of the premium.
WBA also made a move up this week and our spreads are worth quite a bit less. As of the end of the week, they can be closed for about 0.14 for 0.18 in profit per spread.
7/26/2020 Update:
The XLE put spreads continue to decay in our favor and can be closed for 0.07 for a 0.19 win on each spread. There are still 3 weeks before this closes, so if one has other more favorable uses for the capital (additional Option Salary trades or your own!), certainly taking it off and reallocating makes sense. $0.07 for three weeks isn’t much.
Similarly, the WBA put spreads have also come down quite a bit and one can probably close for about 0.09. Same guidance as XLE. This one actually has almost 4 weeks, so again feel free to close and re-deploy as we’ve gotten a nice bit of the premium already.
8/2/2020 Update:
XLE can be closed for ~0.04 if you haven’t already closed. WBA remains close to 0.08 and can also be closed with about 3 weeks remaining. Basically, the same guidance as last week – very little decay remaining for the amount of time left. Feel free to close and re-deploy the capital.
8/3/2020 Close (Partial):
Closed the XLE puts for 0.03. One can probably close them for 0.02 tomorrow as well. This resulted in a 0.23 win per spread for a total of $46 (2 spreads). While we could leave it on for another 2 weeks to squeeze a couple pennies, it is often simpler to close the trade rather than leave it on for that much longer. A useful way to look at it is whether you would put the trade on Today for just 0.02. If not, you should take it off.
8/9/2020 Update:
Minor update, the WBA put spread is basically worthless at 0.03 at the midpoint. Close when you have the opportunity.
8/10/2020 Close:
Closed WBA put spreads for 0.03 for a 0.29 profit on each spread for a total of $58.
