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Feb 2020: FB $200- $210 Bull Call Spread

Stock

FB

Trade Structure

$200- $210 Bull Call Spread

Trade Date

02/03/2020

Expiration Days

03/20/2020

Trade Rationale

NOTE: This trade is me adding on to a position which I placed 3 days ago with FB. The other trade was a $205 - $215 Bull Call Spread with only 21 days left to expiration. I am just giving myself more time with this trade with a better price point. As mentioned in my book, I don't participate in earnings because they are binary events with unpredictable outcomes. However, I have my own way of participating in earnings. Instead of trading before earnings, I wait for earnings to be over. In Facebook's case, although they beat earnings, the earnings weren't "good enough" for the market and the resulting 7% pullback is extreme in my opinion. This is a a mean reversion trade, although I will not be using my typical indicators for this as this is a post earnings event. I bought a $200 - $210 Bull Call Spread, risking $495 to make $495 in 45 days.

Trade Selection Criteria

Overall market movement

DOW dropped 600 points due to the ongoing corona virus scare. 

No Earnings or Significant News

Earnings are behind us and were announced on 1/29

Bollinger Bands outside Keltner Channels

N/A – This is not a mean reversion trade in the traditional sense (i.e the typical mean reversion trades I normally do). So, we can’t use any of our usual indicators here.

N/A

RSI Analysis

N/A – This is not a mean reversion trade in the traditional sense (i.e the typical mean reversion trades I normally do). So, we can’t use any of our usual indicators here.

N/A

ADX Analysis

N/A – This is not a mean reversion trade in the traditional sense (i.e the typical mean reversion trades I normally do). So, we can’t use any of our usual indicators here.

N/A

Trade Analysis

FB initially went in my direction and the trade was looking to be fully profitable, but with hardly any time remaining for expiration, it started falling down. I was forced to close it for a 52% ROI instead of the usual 95% - 100% targets I shoot for. Still a decent winner!

Trade Outcome

PARTIAL WINNER

Profit/Loss

$260

Beginning Account Balance

$16,200

Ending Account Balance

$$16,800

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4 Comments

  1. steven schwartz

    Please let us know what happened with this trade.

    Thank you.

    Reply
    • Nishant

      I have updated the trade.

      Reply
  2. steven schwartz

    Hi Nishant. You mention that there was hardly any time until expiration when you took this trade off, but it seems like there was still plenty of time… You placed the trade on 2/3/20 and took it off on 2/21/20. The expiration wasn’t until 3/20/20. Please explain why you took the trade off so early.

    Reply
    • Nishant

      Steven, Good catch! I tried to find my notes for this trade but couldn’t locate it. There is definitely something missing in my notes here. The only thing I could see if I look at backdated charts is that there was a DI- and DI+ cross over on the ADX accompanied by RSI falling down. I probably took it off because this indicates a drastic change in a stock’s direction. (In fact that is what happened after the day I closed it)

      Reply

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