By: Tom Gentile
on December 10th, 2021
Last week’s Put Credit Spread trade shown at a Sell-to-Open price of $39.50 per contract as of the time of this writing shows it could possibly be Bought-to-Close at $0.07 or $7 per contract.
That shows a profit of $32.50 per contract is possible if one chooses to do so.
Here was the trade:
The idea is to have LOW trading higher than the sold strike in the put credit spread or be trading higher than 237.50 at expiration. That way the options expire, and one keeps the full $39.50 per contract.
The image shown was for a Sold-to-Open put credit spread. In order to close this trade sooner than waiting for expiration in another 7 days one can ‘Buy-to-Close’ this spread and pocket the profits, free up margin, and move on to other trade opportunities.
Recently, I saw this price showing a price to Buy-to-Close’ at $0.07, meaning $7 per contract to close this trade out.
Instead of making $39.50 per contract one would make $32.50 per contract. Since the initial risk on this is the 2.50 difference in the spread offset by the credit realized… in this case $32.50 that would make for an ROI of 13% – not bad for a week.
Oh, and that Jan 14 $250 Long Call that was a bit too pricey at 9.50 is now at $13.85 Bid Price – Oh well, we would rather want what we don’t have than have what we don’t want.
Let’s stick with the process you were educated on last week which is looking for a Money Calendar candidate at or near its 52-week high. One time does not make a trend and so let’s anticipate it continuing to work.
Since I wrote to you all last week what I have done and taught many other to do is take the Money Calendar Bull from the list on a day you want and create a list of JUST those in my tools.
I then run that list against my Hi/Lo list where the tools can search up stocks on that list and here is the list of 29 Bullish Money Calendar candidates with a start date of Dec. 10, 2021.
The far-right column shows you the % of the 52-wk high the security is at. 100% meaning it is at its 52-week high.
We like to look at those 90%-100% to start.
I am going to take the second one on the list Union Pacific Corporation (NYSE: UNP).
MRVL is a bit too parabolic coming just off an earnings announcement and might have too much stock volatility to make an options trade work, so I am sticking with the Railroad stock UNP.
First Option Scenario – Long Call
The first trade idea is a long call, but like last week’s long call it may be too pricey on a per contract basis.
Second Option Scenario – Call Debit Spread
This where one would Buy-to-Open the $245 Call and Sell-to-Open on the same order ticket the $250 Call both with the same expiration date, January 21, 2022, for a Net Debit of $2.75. (One can try and work the spread to get it at $2.50, but I will post just the natural as shown by my tools).
This could be a max profit potential of $225, which would be an 81.82% ROI so long as UNP is above 250 at expiration.
In case you wanted to see a chart of UNP at or near its 52-wk high and you are in the tools click on the ‘pic’ link and a chart will populate: