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DEC 2020: MRNA $125- $135 Bull Call Spread

Stock

MRNA

Trade Structure

$125 - $135 Call Spread

Trade Date

12/16/2020

Price Paid

$500

Expiration Days

01/22/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

DEC 2020: MRNA $125- $135 Bull Call Spread - MRNA came to my attention on 12/1 when the stock popped on news of their COVID vaccine being submitted to FDA for emergency authorization. It almost behaved like a binary/earnings event due to this. The stock immediately gave up its gains but started recovering in the days following the news. Since this is not a stock in my watchlist and I wasn’t familiar with it’s personality, I decided to wait and see how it trades and if I can get a second opportunity. An analyst downgrade caused the stock to drop > 6% which gave me the right opportunity. The stock came back down to the level on 12/1. This followed by a clear DOJI candle, prompted me to take this trade. I know it confused a lot of people about how we were able to get into a $125-$135 call spread for $5 when the stock was trading at $139. I initially tried to put on a $135 - $145 trade here. But when I noticed the spread was costing only $1.80 cents, I went deeper in the money until I was able to pay $5 for it, which resulted in the strikes I posted in the trade alert.

Trade Selection Criteria

Overall market movement

There is no extreme movement in Nasdaq. This was a trade similar to a post-earnings trade.

No Earnings or Significant News

Earnings are behind us and were announced on 10/29

Bollinger Bands outside Keltner Channels

Bollinger bands are clearly outside the Keltner Channels.

RSI Analysis

RSI is inconclusive but is showing signs of turning up.

ADX Analysis

ADX not 100% clear but is pointing down indicating the downward momentum may have lost its legs.

Trade Analysis

This was a very interesting trade at so many levels. A few interesting points were we got a 125-135 Calls Spread for $5 when the stock was at $137. Usually the stock price has to be between the strikes for you to get a fill for $5. Second, the stock immediately went against us after putting on the trade. If you were unfortunate enough to buy a naked Call for this trade, you would have lost all your money on this trade. But Debit spreads are not affected by Time Decay and so our debit spread survived the entire trade and ended up generated a 40% profit on this wild trade. This trade is a great example of why Debit Spreads are superior in every aspect to buying naked Calls.

Trade Outcome

PARTIAL WINNER

Profit/Loss

$200

Beginning Account Balance

$8,900

Ending Account Balance

$11,100

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