Jan 2020: BKNG $1900 – $1915 Bull Call Spread

Stock

BKNG

Trade Structure

$1900-$1915 Bull Call Spread

Trade Date

01/28/2020

Expiration Days

02/21/2020

Trade Rationale

Jan 2020: BKNG $1900- $1915 Bull Call Spread. With the ongoing Coronavirus scare, travel stocks like BKNG have been pulling back. With all our indicators indicating that this might be the end of the pullback, I am testing the waters with a $1900 - $1915 Bull Call Spread.

Trade Selection Criteria

Overall market movement

The markets have been pulling back due to the ongoing Coronavirus scare

No Earnings or Significant News

Earnings are behind us and the next earnings will be after our expiration cycle. Earnings scheduled for 02/26/2020. Note: I did choose a smaller expiration cycle for this trade to avoid earnings

Bollinger Bands outside Keltner Channels

Bollinger Bands are way outside Keltner Channels. As you can see in the chart, BKNG dropped like a rock in since 1/10/2020. Since, I am aware of the stocks “personality”, this is highly unusual and even though Coronavirus may affect the stock but this extreme pullback is uncalled for. Perfect time for a mean reversion trade 

RSI Analysis

RSI crossed above 30 after being in the oversold zone for some time, indicating a trend reversal

ADX Analysis

ADX is not very clear. It seems flat or slightly rising. However the DI- line is showing a sharp turn which indicates exhaustion of the current downwards trend.

Trade Analysis

This trade worked out perfectly as all other BKNG positions I put on to add to my position. I will still say that I don't like putting on trades with less than 30 days to expiration, but with this one I was forced to do it to avoid earnings. In the end, it worked out great! I do want to draw your attention to the beauty of this trade. BKNG dropped $100 within 3 days after I bought my bull call spread. If I had bought a naked call option, theta (time decay) and delta would have annihilated me at this point. But spreads are very resilient. You don't lose money immediately if the stock price goes against you. On the flip side, you don't immediately start showing large profits when the stock price goes in your direction. In my experience, this is great, because you don't experience the Adrenalin rush of losing or winning, which in turn helps your emotions stay stable. And if you have any kind of experience with trading, you know that it is not about the strategy, winning in trading is a game of your mind.

Trade Outcome

Winner

Profit/Loss

$603

Beginning Account Balance

$16,537

Ending Account Balance

$23,200

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