If you agree that CPRT will stay above the 50-day moving average (red line in chart), consider the following trade that relies on the stock remaining above 140 (blue line in chart) through expiration in five weeks. Buy to Open CPRT 15Oct 135 put (CPRT211015P135) Sell to Open CPRT 15Oct 140 put (CPRT211015P140) for a credit of $1.20 (selling a vertical) This credit is $0.05 less than the mid-point of the option spread when CPRT was trading at $143. 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 $118.70. This trade reduces your buying power by $500 and makes your net investment $381.30 ($500 – $118.70). If CPRT closes above $140 on October 15, both options will expire worthless and your return on the spread would be 31% ($118.70 / $381.30).
As with all investments, you should only make option trades with money that you can truly afford to lose.
Happy trading,
Terry |