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NOV 2020: BBY $110 – $115 Bull Call Spread

Stock

BBY

Trade Structure

$110 - $115 Call Spread

Trade Date

11/27/2020

Price Paid

$250

Expiration Days

12/24/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

BBY gapped down even after beating earnings on 11/24. I had my eyes on a $110 - $115 post-earnings spread ever since and I got the opportunity today. If markets pullback next week, it might drop down to $105, but $110 seems to be the line in the sand for now. Given that BBY was trading at $124 before earnings, this seems like an easily achievable target! NOTE: If you have been trading with me for some time, you will instantly spot this as my typical post-earnings trade. I have also described these trades in the second edition of my book. These trades are based on Support/Resistance only as my other indicators don’t apply here.

Trade Selection Criteria

Overall market movement

There is no extreme movement in Nasdaq. This was a post-earnings trade, so the regular market indicators are not as relevant. I have talked about these trades in the second edition of my book. 

N/A

No Earnings or Significant News

Earnings are behind us and were announced on 11/24

Bollinger Bands outside Keltner Channels

Bollinger bands are clearly outside the Keltner Channels.

RSI Analysis

Our regular indicators don’t apply to post-earnings trades

N/A

ADX Analysis

Our regular indicators don’t apply to post-earnings trades

N/A

Trade Analysis

This is an interesting loser and it will explain why sometimes I am unable to use the 50% loss rule to exit positions. As mentioned in my book, unless there are more than 15 days left in my expiration cycle, I don't pay attention to a trade which is not going in my direction. If there are less than 15 days left and my position has lost 50% of its value, I close the position. However, in certain situations like this one, the stock immediately went against me. And by the time 15 days were left in the expiration cycle, the position had lost 90% of its value. At this point, there was hardly any thing left in the position to salvage, so I had to let it expire for a full loss.

Trade Outcome

LOSER

Profit/Loss

$250

Beginning Account Balance

$7,900

Ending Account Balance

$9235

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

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