May 2020: BKNG $1620-$1630 Bull Call Spread
Stock
BKNG
Trade Structure
$1620-$1630 Bull Call Spread
Trade Date
05/29/2020
Price Paid
$500
Expiration Days
07/02/2020
THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.
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Trade Rationale
As you know I don't trade earnings at all. In fact I try my best to stay away from stocks which have earnings in the next 30 days. But post earnings generates some really good opportunities.
Post earnings trades are very different than our regular mean reversion trades. These are actually continuation trades. Since, earnings causes a reset in the stocks price movement and its personality, you have to respect the direction in which earnings sends the stock price and have to find trades in the same direction.
If you haven't watched my video on Support & Resistance (https://tradingextremes.com/technical-analysis-3-support-resistance-post-earnings-trades/), I talk about post earnings trade in that video in detail. Basically, after earnings you get 1 or 2 opportunities to put on a trade in the original direction of the stocks price movement at earnings.
With BKNG, the post earnings reaction was really weird. Basically, there was no movement in the stock for upto 8 days. This was really unusual and confused me. In fact a few members asked me about any BKNG post-earnings trade, but I told them the stock is stuck in a range, so I am not taking any trades.
Finally, there was a huge spike 8 days later, which got my radars up and I started following BKNG for a pullback opportunity. It just kept going up and did not give us any opportunity. After hitting $1788, it started pulling back and I started watching it on a daily basis. Notice the red candles becoming smaller and smaller and also look at the yellow support line I have drawn. I was watching the stock to hit that support line and it gave us a beautiful opportunity today.
Trade Selection Criteria
Overall market movement
We got a nice 300 point drop in the DOW today due to the President’s address on the China situation.
No Earnings or Significant News
Earnings were just announced on 5/7 and are behind us
Bollinger Bands outside Keltner Channels
Yes, Bollinger Bands are wildly outside the Keltner Channels
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
BKNG shot up to $1871 right after we put on our trade and our trade was profitable for some time and almost at the verge of closing for a full profit. However, BKNG dropped after that and started testing our strikes, many times dropping as low as $1575. Many of our members were getting nervous about this trade, so had to manage the trade carefully. In the end, with only 2 days remaining I had to close my trade for a $200 profit only.
NOTE: I posted many more trades as the stock dropped down all the way to $1560 at times and a lot of our members have $1560-$1570 or $1570-$1580 or other lower spreads expiring on 17th and 24th July
Trade Outcome
PARTIAL WINNER
Profit/Loss
$200
Beginning Account Balance
$4,000
Ending Account Balance
$5000
First off, you sir are a huge inspiration. I just finished your book for a 2nd time, I LOVE studying your trades. One think I can’t seem to figure out is why would a trader not just close a position as soon as the market price (in this trade example) is above $1630? My understanding is then you would close the position with 100% profits. Or am I missing something?
Hello, spreads don’t work like naked calls and puts. For spreads to be fully profitable the extrinsic value of the options needs to drain out first. Typically, ITM spreads close for a full profit between 5-10 days of the expiration date.