United Airlines (UAL) Put Spread, Covered Call

One of my least favorite airlines to fly is United. I know that All airlines have delays and cancellations, but they made a giant mistake once that kept my wife and two small children from meeting me across the country. In short, they wouldn’t let my family on the first leg of a trip because they “weren’t going to make their connection” when their second leg was actually going to be on the same physical plane! A day later and a different airline and I was reunited with my family. I avoid flying with them when I can, but I will still trade the company!

Below is a deep dive of one of the Option Salary Silver trades of the week. This trade alone would have paid for over 9 months of the service. Learn more and sign up here

With fears of the Coronavirus spreading, airline stocks took a hit, United along with its peers. United Airlines hadn’t spent time below 77 in over a year, recovered during the day, and we sold a put spread:

1/27/2020 – Sold the 31 Jan UAL 76/74 for a 0.33 credit

Given this would be a 52 week low if the stock expired between the strikes, the plan was to take delivery of the shares

UAL closed at 74.80 on 1/31/2020 and we took delivery of 100 shares per spread, with an effective price of 75.67

On 2/3/2020 we sold a 77 call for 1.34 (0.27 more than planned over the weekend) and $100 more upside with the strike at 77 vs the 76 with which we were assigned. Note one could have sold for more credit at the 76 and less capital appreciation.

2/7/2020 – UAL ended at 79.49, a nice recovery, and our stock was happily called away. One also could have closed the position during the week if they wanted to reallocate the capital.

Results – we gained $1.67 in credits, plus $1 in capital appreciation for $267 in profit per contract/covered call in just 2 weeks time. If stock was purchased on margin, this is about a 7% return on $3800 of risk in two weeks. Without margin, this is a 3.5% return in 2 weeks which would be 91% annualized (which is, admittedly, wildly unrealistic).

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