Happy Friday everyone! I can't tell you how happy I am to be home sitting next to my little one here! I thought today I would go through a real world trade step by step. A couple weeks ago I opened the following trade:
Sell 72 BIDU 97.5 Calls
Buy 72 BIDU 102.5 Calls
Basically this means I sold 72 call option contracts of a stock named BIDU. The strike price I sold the calls were was 97.5. At the time of the trade, for every contract I sold I received $36. To complete the spread I bought an identical number of BIDU calls at the 102.5 strike. For every contract I bought I had to pay $11. So my spread for this trade $25 per contract minus my broker commissions.
The million dollar question is how did I come up with this stock and these strike prices? Well without spilling all the beans I used a "screener" to find a trade that fit all the criteria I've been talking about in my earlier posts. BIDU isn't reporting any earnings this options cycle which ends on April 20th. There was no crazy news about BIDU I could find on the web. When I ran the numbers I figured out this spread had roughly an 80% chance of success. Those are good odds to me! As long as BIDU stays under 97.5 I get to keep all my "premium". At the time I opened the trade BIDU was trading around $86. As of the close today BIDU is at $85.16. With two weeks to expiration everything looks pretty good!
Just in case things go crazy I have an alarm set to let me know if BIDU reaches $96. If the stock price gets too close to 97.5 I can always decide whether to keep the trade open (not a good idea) or adjust it to give me some more cushion (much better idea).
Anyway, it's as simple as that. I researched the trade for about 30 minutes. I check the stock price each day at the close of the market. And just in case, I have an alarm set to warn me if something drastic happens during the day.
Next week, I'll update this trade to see how things are going. Have a good weekend my friends.
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