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May 2020: WMT $124-$129 Bull Call Spread

Stock

WMT

Trade Structure

$124 - $129 Bull Call Spread

Trade Date

05/21/2020

Price Paid

$222

Expiration Days

06/26/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

This is a post earnings trade. As you may have noticed on my earnings trades, they are not my usual mean reversion trades. Instead they are always continuation trades. i.e I trade in the direction of the earnings spike (whether it is up or down). There are always exceptions to this, which you may see me doing in the future, but 90% of the time this general rule applies. With Walmart, we had a nice earnings spike on 5/19, and then I was waiting for a post-earnings trade. Today, we had an opportunity where WMT pulled back to a really well established support level of $124. I got filled at $2.22 on this trade, so we got in at a really nice price point too instead of the regular $2.50.

Trade Selection Criteria

Overall market movement

Markets were mostly flat, but we were able to get into this trade on a small pullback in the general market.

No Earnings or Significant News

Earnings were just announced on 5/19 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

This trade was a loser and we did get a little unfortunate with this one. WMT went into a "squeeze" immediately after we purchase the spread. As you know a "squeeze" or "consolidation" is marked by Bollinger Bands trapped inside the Keltner Channels. This represents a period of hardly any price movement. Further, the stock dropped all the way down to $120 and got stuck at that price for the whole month giving us hardly any chance to get out since our strikes were much higher. Is there any thing we can learn from this? Well, hindsight is 20/20. But we could have closed this position out at 50% loss on original investment. Other than that, this trade does reinforce why I avoid "squeezes" when look for a trade.

Trade Outcome

LOSER

Profit/Loss

$222 (LOSS)

Beginning Account Balance

$4,000

Ending Account Balance

$4200

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1 Comment

  1. Bull Bear

    Thank you for sharing losing trade as well.

    Reply

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