8/9/2020 Plan: We look to add a mid term put spread in McDonald’s (Ticker: MCD) for a nice credit
8/9/2020 Plan (continued):
- MCD – Sell 1 of the 18 September 190/185 put spreads for 0.74.
- The bid/ask spread is currently wide, but I’ll also look at the 4 September 190/185 put spread for 0.57
- Prices are as of market close 8/7/2020, 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!
8/9/2020 Commentary:
As overall market volatility continues to come down, we look at “straight forward” bullish plays in names that should do ok, even if there is a near term hiccup. There are many that say the market shouldn’t be doing so well given the world-wide pandemic, but we trade what the market offers us. This week’s trade goes out a bit further (40 days) to capture a bit more premium and a higher potential return on our risk. We’ll look at a trade a couple weeks earlier at the same strikes, although the bid/ask is wide and the premium taken in will be less. IV is still above HV and the strike we’re selling is at roughly 27% (vs. historical of about 21%). For larger accounts, or those willing to put on more than 2% risk, one can look at the 190/180 for a 1.27 credit. For the default 18 Sept 190/185 at 0.74, we have a potential return of 17.4% (74/426) if it expires worthless.
Reach out with any questions on this or any other trade!
8/10/2020 Entry:
18 Sept MCD 190/185 put spread sold for 0.71. 4 Sept available for 0.50. We will track both to see how they each perform.
8/16/2020 Update:
A nice move up in MCD last week and our put spreads have become nicely profitable after the first week. The 4 September is worth about 0.26, meaning we could take half the profit now. The 18 Sept are down to about 0.46. No change to either at this time.
8/23/2020 Update:
The 4 Sept put spread is worth 0.01 at the midpoint, but this is due to wide bid/ask spreads and you likely can’t close it for that little. It is well out of the money with MCD at 211.57 and we’ll put in an order to close it for a few cents otherwise we’ll let it likely expire worthless in a couple weeks.
The 18 Sept put spread is down to 0.21. We’ll let it continue to decay for the time being.
8/30/2020 Update:
The 4 Sept put spread is very far OTM and essentially worthless. Take it off for a few cents or let it expire this week. The 18 Sept put spread is still worth about 0.20, no change this week to the position.
9/7/2020 Update:
The 4 Sept put spread expired worthless last week, never really being challenged and taking in a full $50/spread. The 18 September put spread remains open, worth about 0.12. One can close it if they need to re-allocate capital. Otherwise, given it is 20+ dollars out of the money, you can keep it on to try and collect a bit more decay.
9/13/2020 Update:
Our put spread is very likely to expire worthless this week as it is 28 dollars out of the money. One can close it at any time or simply wait until Friday and let it expire worthless. If there is a big drop in MCD, close it if the spread reaches 2x our initial credit or 1.42. This is unlikely, but it would prevent a bigger loss.
9/20/2020 Close:
Our put spread expired worthless on Friday, allowing us to take the full profit on the trade of $71/spread. This was a 16.6% return on our risk in a little over a month.
