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July 2020: OKTA $195 – $200 Bull Call Spread

Stock

OKTA

Trade Structure

$195 - $200 Bull Call Spread

Trade Date

07/14/2020

Price Paid

$250

Expiration Days

08/14/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

This is not the first time we are trading OKTA. We just closed a trade on OKTA on 7/6 with 94% profit. After peaking to $224, OKTA has been under some downwards pressure and I had been eyeing it for another trading opportunity. With this pullback, OKTA came down to $195 (I would have preferred $190), but I got into a $195-$200 bull call spread. In addition to the strong support line at $190, you will notice that the ADX is below 25, indicating that this downward pressure is not sustainable. i.e a perfect time for a mean reversion trade!

Trade Selection Criteria

Overall market movement

The market has been going up non-stop for 10 days, and we got a quick pullback today, when DOW dropped more than 300 points today.

No Earnings or Significant News

Next earnings are on 10/26

Bollinger Bands outside Keltner Channels

Bollinger Bands are outside Keltner Chanels. 

RSI Analysis

RSI is smack in the middle (i.e not oversold or overbought)

ADX Analysis

ADX is pointing down and below 25, indicating that the downward pressure is not sustainable.

Trade Analysis

The trade immediately went in our favor, however towards the end it had a downward move and our trade was tested as expiration was just a few days away. We were still able to close the trade for 80% profit.

Trade Outcome

WINNER

Profit/Loss

$200

Beginning Account Balance

$5,400

Ending Account Balance

$6200

To follow along the strategies we use in the $25K challenge, we recommend that you get the strategy book which explains the whys and wherefores of our method. Get it here=> https://amzn.to/2MUOCE5

2 Comments

  1. Rich L

    Hi Nishant,

    Love your book and the simplicity with which you trade options.

    on 7/14 Okta’s low was 193 and not 190 and closed at 206, correct? So based on your position you actually went ITM the same day?
    Would you close your position if you are already ITM?

    Reply
    • Nishant

      The problem with debit spreads is they don’t become profitable as soon as they go ITM. You have to wait until expiration is at least 10-12 days away. The reason for this is that unless the extrinsic value drains out of both the options, they kinda cancel each other’s profits (and losses)

      Reply

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