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OCT 2020: BIIB $260 – $265 Bull Call Spread

Stock

BIIB

Trade Structure

$260-$265 Call Spread

Trade Date

10/22/2020

Price Paid

$250

Expiration Days

11/27/2020

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

With BIIB, the stock tanked before earnings. The earnings were actually good. Even if there was no earnings event, this kind of dramatic move would have caught my mean reversion mentality and I would be looking for an opposite trade anyways. To add to that, the stock is actually trading at a well established support of $260, which caused me to jump at this trade. All we need is for it to stay at $265 or above, and we will make our 94% ROI on this trade.

Trade Selection Criteria

Overall market movement

The markets have been under pressure due to rising COVID cases and elections right around the corner.

No Earnings or Significant News

Earnings are behind us and were announced on 10/21

Bollinger Bands outside Keltner Channels

This is a post-earnings trade. Our normal mean-reversion technical indicators don’t apply here. 

N/A

RSI Analysis

This is a post-earnings trade. Our normal mean-reversion technical indicators don’t apply here. 

N/A

ADX Analysis

This is a post-earnings trade. Our normal mean-reversion technical indicators don’t apply here. 

N/A

Trade Analysis

This is a very unusual trade. I put on this trade originally for 11/27 expiry. But I learnt that there was a binary event pending on 11/06 (FDA decision). Since, I don't trade binary events, I decided to close it before 11/06. However, right after putting on this trade, BIIB kept sliding all the way down to $243 not giving me an opportunity to close. Finally, today for whatever reason (FDA leak?) the stock shot up 44%. That is $100 in a single day and I was able to close this position out for break-even.

Trade Outcome

SCRATCH

Profit/Loss

$0

Beginning Account Balance

$7,585

Ending Account Balance

$7,600

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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