DEC 2020: MRNA $125- $135 Bull Call Spread
Stock
MRNA
Trade Structure
$125 - $135 Call Spread
Trade Date
12/16/2020
Price Paid
$500
Expiration Days
01/22/2020
THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.
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Trade Rationale
DEC 2020: MRNA $125- $135 Bull Call Spread - MRNA came to my attention on 12/1 when the stock popped on news of their COVID vaccine being submitted to FDA for emergency authorization. It almost behaved like a binary/earnings event due to this. The stock immediately gave up its gains but started recovering in the days following the news. Since this is not a stock in my watchlist and I wasn’t familiar with it’s personality, I decided to wait and see how it trades and if I can get a second opportunity.
An analyst downgrade caused the stock to drop > 6% which gave me the right opportunity. The stock came back down to the level on 12/1. This followed by a clear DOJI candle, prompted me to take this trade. I know it confused a lot of people about how we were able to get into a $125-$135 call spread for $5 when the stock was trading at $139. I initially tried to put on a $135 - $145 trade here. But when I noticed the spread was costing only $1.80 cents, I went deeper in the money until I was able to pay $5 for it, which resulted in the strikes I posted in the trade alert.
Trade Selection Criteria
Overall market movement
There is no extreme movement in Nasdaq. This was a trade similar to a post-earnings trade.
No Earnings or Significant News
Earnings are behind us and were announced on 10/29
Bollinger Bands outside Keltner Channels
Bollinger bands are clearly outside the Keltner Channels.
RSI Analysis
RSI is inconclusive but is showing signs of turning up.
ADX Analysis
ADX not 100% clear but is pointing down indicating the downward momentum may have lost its legs.
Trade Analysis
This was a very interesting trade at so many levels. A few interesting points were we got a 125-135 Calls Spread for $5 when the stock was at $137. Usually the stock price has to be between the strikes for you to get a fill for $5. Second, the stock immediately went against us after putting on the trade. If you were unfortunate enough to buy a naked Call for this trade, you would have lost all your money on this trade. But Debit spreads are not affected by Time Decay and so our debit spread survived the entire trade and ended up generated a 40% profit on this wild trade. This trade is a great example of why Debit Spreads are superior in every aspect to buying naked Calls.
Trade Outcome
PARTIAL WINNER
Profit/Loss
$200
Beginning Account Balance
$8,900
Ending Account Balance
$11,100
hello, i just finished reading your book. Thanks for the information shared. I am ready to try your challenge. However, I am confused because in your book you refer to trading extremes whit mean reversion, but in your book, the stock that are shown, seems to be in range, not in extremes? And in this particular trade (MRNA), you buy in the middle of bollinger bands?
I do many kinds of trades in our private group. I have gone into detail about mean reversion trades in my first edition of the book. I have explained pre-earnings and post-earnings trades in the second edition of the book. In addition to that, I also do squeeze trades and support/resistance trades as well.
Pierre – there is value-add to the online private group. More involved techniques that still fall in line with the concepts of the book, but to a greater degree are discussed and debated almost daily. A lot of the second edition came out of ideas and strategies developed within the online community under Nishant’s expert guidance.
Hello Mr. Nishant, I read your first book. Thanks for sharing your trading strategies.
When the trade went against you, I don’t see that you tried to adjust your trade. There are other strategies like roll the options down, ratio back spread or collar trade that can turn a bad trade to a winner. When you handle losing trades, I see you closed the trade if the loss is 50% of your investment. What is the reason you don’t adjust a losing trade?
I’m a beginner in options trading, any insight would be greatly helpful.
Thanks
I don’t do anything to the trade if there are > 15 days left to expiration. Also, I don’t believe in adjustments. Although this trade was a partial winner, losing is part of trading and you should accept that. Rolling promotes the wrong trading mentality that you will not have any losers. When you roll you are pretty much taking a loss on the old trade and opening a new trade. By keeping my trading simple I am able to achieve 80% – 85% winners because instead of focusing on salvaging losing trades, I spend my focus and energy on finding new winning trades.