If you agree that CTAS will stay above its 20-day moving average, consider the following trade that relies on the stock remaining above 380 through expiration in five weeks. Buy to Open CTAS 20Aug 370 put (CTAS210820P370) Sell to Open CTAS 20Aug 380 put (CTAS210820P380) for a credit of $3.15 (selling a vertical) This credit is $0.05 less than the mid-point of the option spread when CTAS was trading at $386. Unless the stock rallies quickly from here, you should be able to get close to this amount. Your commission on this trade will be only $1.30 per spread. Each spread would then yield $313.70. This trade reduces your buying power by $1,000 and makes your net investment $686.30 ($1,000 – $313.70). If CTAS closes above $380 on August 20, both options will expire worthless and your return on the spread would be 46% ($313.70 / $686.30).
As with all investments, you should only make option trades with money that you can truly afford to lose.
Happy trading,
Terry |