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Mar 2020: BKNG $1200 – $1210 Bull Call Spread

Stock

BKNG

Trade Structure

$1200-$1210 Bull Call Spread

Trade Date

03/19/2020

Price Paid

$530

Expiration Days

05/15/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.
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Trade Rationale

Mar 2020: BKNG $1200- $1210 Bull Call Spread. With the ongoing Coronavirus scare, every single stock including travel stocks like BKNG have been pulling back. With the unprecedented conditions and volatility in the market, we have to tread carefully. With signs popping up indicating that this sell-off may be nearing its end, I am trying out this trade to test the waters. If this goes our way, we will make a profit of $470. BKNG dropped to $1177 after we put on this trade, so this is a great opportunity to get in if you missed the original alert. However, under these conditions I feel like 30 days (which is what I usually do) is not enough for a market recovery, so we are giving it more time. 57 days to be exact. NOTE: The BKNG has earnings on 5/14, so we are falling into the expiration cycle. So, I will be closing this trade at least 10 days before earnings.

Trade Selection Criteria

Overall market movement

We have experience an unprecedented sell-off in the markets due to the ongoing Coronavirus scare

No Earnings or Significant News

We were forced to give this trade 57 days to work in our favor due to the market conditions. However, the next earnings are on 5/15 which means they coincide with our expiration cycle. I will be closing this trade at least 10 days before earnings.

Bollinger Bands outside Keltner Channels

This is a no-brainer! Bollinger Bands are way outside Keltner Channels. 

RSI Analysis

RSI has been in oversold zone for some time. However, it is not showing any signs of a clear reversal yet

ADX Analysis

ADX is flattening out. This indicates that the sell-off is losing strength. Also, DI+ and DI- are finally reversing directions.

Trade Analysis

Analysis will be updated when we close the trade

Trade Outcome

WINNER

Profit/Loss

$445

Beginning Account Balance

$2,500

Ending Account Balance

$3200

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

6 Comments

  1. Shajina KP

    Hello Mr. Nishant – Thanks for writing the great book! I have completed reading it today and surely it is one of the BEST!!. Very crisp and straight to the technical details/strategies.

    Quick question – In the current challenge, I see that you’ve executed all the trades (published ones) with Bull Call spreads. Is that because of better risk:reward ratio when compared to credit spreads? After reading your book, I was little biased towards the credit spreads considering the high probability of winning. Is there any specific reason for executing Bull Call over the Credit Spreads (other than risk:reward)?

    I’m a beginner in trading world, any insight would be greatly helpful.

    Thanks again for the awesome book!!

    Reply
    • Nishant

      To answer your question, let us first talk about why people trade credit spreads in the first place:

      The reason why people do credit spreads is because with credit spreads you can choose the risk you want to take and also choose your own probability of winning. For eg. With AAPL trading at $290, you could sell a $270 – $265 bull put spread. That will bring in $100 but you are risking $400 on the trade. What you will notice is that with credit spreads you give yourself a nice cushion to be right. But risk/reward
      go hand in hand. So, in this case you would have a 70% probability of winning that trade. (The trading platform calculates the probabilities for you, which is where I got the 70% number). So, it looks like a really safe trade and it definitely is. But just notice that you are risking a lot of money and making very less if you are right.

      When I start out with my challenge, I am starting with $2500. With that small an amount, credit spreads just don’t work out. In my experience you need an account of $10k – $15k to use credit spreads effectively. With $2500, if your first couple of trades are losers, you can get wiped out before you even start. Whereas, with debit spreads I risk $250 with each trade and I can double my money if I am right. So, it grows my account exponentially as opposed to credit spreads.

      So, to summarize:

      Credit spreads are slow movers: With the $25k challenge, my goal is to grow my money very fast. Credit spreads are slow movers so they don’t work for what I am trying to achieve.

      With Credit spreads you are risking much more: With $2500 to start, we can’t afford to risk $400 to make $100 even if you are right.

      Debit Spreads double your money: With debit spreads, I risk $250 with each trace, and every time I am right, I have the potential of doubling my money.

      Probability of winning:  The broker platform will show you that the debit spreads I trade have only a 50% chance of success. which is equal to a coin flip. But since I use technical analysis to trade market extremes, the actual probability is more in the 80% – 90% range.

      Hope it makes sense. 

      Reply
  2. C T

    Yes, makes a lot of sense and its clear as to what you do, how you do it and why you do it. I should have subscribed. Maybe next challenge. Really good stuff you are doing.

    Tks,

    CT

    Reply
    • Nishant

      Thanks. I am glad you are finding my trades educational. The 11th challenge is currently under progress, and we are still accepting new members for another 2 weeks. You can join any time. email admin@25koptionschallenge.com for more info.

      Reply
  3. Ian

    How is the end balance $3200? $2500 + $445 = $2945.

    Reply
    • Nishant

      Since I have multiple positions open and they all fluctuate on a daily basis. The end balance cannot be calculated based on a single position.

      Reply

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