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May 2020: SPOT $145 – $150 Bull Call Spread

Stock

SPOT

Trade Structure

$145 - $150 Bull Call Spread

Trade Date

0/29/2020

Price Paid

$265

Expiration Days

06/05/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

May 2020: SPOT $145 - $150 Bull Call Spread. This is a post earnings trade. Earnings cause a reset in a stocks personality and momentum, due to the nature of it being a binary event. So, post earnings trades for me are almost always continuation trades instead of the usual mean reversion trades. Spotify announced stellar earnings. Their 1st quarter reveneue surged 22%, they are the one of the few companies which is actually enjoying a virus surge right now. After shooting to $163 post-earnings, SPOT is experiencing a little pullback. In my opinion this is a golden opportunity and I feel most confident about this trade in this round of trades.

Trade Selection Criteria

Overall market movement

We are experiencing unprecedented volatility in the markets due to the ongoing Coronavirus scare. We put on this trade, when we saw a pullback in the market and SPOT.

No Earnings or Significant News

Earnings were just announced on 4/29 and are behind us

Bollinger Bands outside Keltner Channels

N/A – For post earnings trade my regular indicators don’t apply.

RSI Analysis

N/A – For post earnings trade my regular indicators don’t apply.

ADX Analysis

N/A – For post earnings trade my regular indicators don’t apply.

Trade Analysis

Needless to say, this was a picture perfect trade. It returned us 83% ROI 20 short days. With debit spreads, you usually have to wait for the last 7-10 days of expiration to yield full profit. But in this case, SPOT shot off to the moon allowing us to close the trades 15 days early.

Trade Outcome

WINNER (83% profit)

Profit/Loss

$225

Beginning Account Balance

$3,200

Ending Account Balance

$4000

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

5 Comments

  1. Spencer Hunt

    Very nice job. Nicely executed and it worked out well.

    Reply
  2. Nagaraja Rao

    I read your book to know call/put spreads and your examples are crystal clear. Coming back to this SPOTIFY trade, which you closed in 20 days and the original expiry was 06/05/2020, so do you wait till 06/05/2020 to open another trade using that profit.

    Reply
    • Nishant

      Glad you found the book helpful. The goal is to use up 30% of my capital at all times. When the money is freed up, I start looking for other trades. We just put a trade on WMT which I will be documenting in a few days.

      Reply
  3. KENNETH TURNER

    I made this same trade and have been unable to close for days…. How to you decide how far below the current mark to close your options in these very low volume options contracts?

    Reply
    • Nishant

      I always place a GTC closing order at $4.85 after I open a $5 wide debit spread like this one. That way, it will automatically get filled when the time is right. All the members in our group were able to close this trade without any issues.

      Reply

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