A couple of weeks ago, PCLN had a huge gap to the upside. For a variety of reasons, several of trading coaching clients decided that PCLN was going to continue to go upwards. Some coaching clients were interested in buying Dec Calls. Others of us were interested in a November Bull Put Credit.
The December call position would have to be closed by the November expiration due to time decay. The price of the option would have to be higher than the open price to make a profit. The higher the stock, most likely the higher the profit. Slight moves up or down will affect their profit.
The November 270/280 Bull Put Credit spread will be at maximum profit on November expiration if the stock price is above $280. Although the profit has a limit, that profit will be there on November expiration. Since the current stock price is above $370, as a trader, I don’t sweat it if PCLN has a few (or quite a few) down days.
With this goofy market, I really appreciate spread trades and prefer spreads to single leg calls or puts – in most cases. Paper trade some spreads and single leg calls or puts. Let me know which ones are working out to give you the best profit with the least heart burn.
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