Underlying Stock – GS (Goldman Sachs)
Strategy – Bull Put (Credit) Spread
The strategy involves selling an Out of the Money Put Option of an underlying stock and buying further out (most often the next strike price) less expensive Out of the Money Put Option for protection. These selling and buying different strike price put options creates a credit and that’s the maximum profit for the trade if successful. Maximum loss will be the difference between sold and bought put option strike prices.
Outlook and Action
Prices continued it’s upwards move on 31 July after bouncing off Bollinger band on 24 July. Morning star candlestick pattern between 21, 24 & 25 July started this upwards move after recent pullback. Hammer candlestick patter on 28 July again confirms the upwards move. A buy signal day flashed last week on 25 July, another Buy signal on 31 July (RSI and MACD Histogram pointing up shown by green arrows in the chart) and prices moved up 20 days simple moving average and that gave me confidence that most likely prices are going to continue the upwards for a short time. Strike prices sold and bought were outside the lower Bollinger band and below recent low from 24 July.
| Side | Quantity | Symbol | Expiration date | Strike price | Type | Price | Net Price |
| SELL | 10 | GS | 05-August-17 | 217.50 | PUT | 0.24 | 0.10
Credit |
| BUY | 10 | GS | 05-August-17 | 215.00 | PUT | 0.14 |
Capital required to do this trade was $2500 and have received $0.10 credit per share. If successful with the trade, I would make $78.05 net profit, that’s 3.12% return on the capital invested in 5 days. Below is the calculation.
| Capital requirement/maximum loss | $2500.00 | 10 contracts, each options contract consist of 100 shares, $2.50 spread between strike prices (10 x 100 x $2.50 = $2500). |
| Net profit | $78.05 | ($0.10 x 100 x 10 – $21.95 commission = $78.05 |
P.S Please note that the trade is now closed. Do not copy and place a trade unless you are an expert and know what you are doing. This writing is only for educational purposes. Trading is risky without proper knowledge, practice, expertise and mentorship.