If you agree that SQ will stay above its 200-day moving average, consider the following trade that relies on the stock remaining above 210 through expiration in six weeks. Buy to Open SQ 23Jul 205 put (SQ210723P205) Sell to Open SQ 23Jul 210 put (SQ210723P210) for a credit of $1.80 (selling a vertical) This credit is $0.02 less than the mid-point of the option spread when SQ was trading above $219. 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 $178.70. This trade reduces your buying power by $500 and makes your net investment $321.30 ($500 – $178.70). If SQ closes above $210 on July 23, both options will expire worthless and your return on the spread would be 56% ($178.70 / $321.30).
As with all investments, you should only make option trades with money that you can truly afford to lose.
Happy trading,
Terry |