Sep 17, 20222 min
Updated: Sep 24, 2022
Hi Advanced Traders!
If you recently set up some bear call spreads, hopefully you were able to close out your positions and lock in your profits. If not, you can do so on Monday.
Remember that we typically like to automatically close our profits when our bear call spreads decay to 50-80% of their value.
With the free capital, we can now set up some new bear call spreads, especially with the news that was released earlier this week.
Again, remember that by setting up bear call spreads, you are willing to purchase shares to cover yourself in case the underlying stock rises up.
AMZN Bear Call Spreads
Looking at the recent highs of AMZN, we see that the stock had some difficulty passing the $144 level. Because of this, I'm planning on selling my second leg at either the $144 or $145 strike.
Also be mindful that earnings are coming up in October. I know, time flies right? If you are not comfortable with the volatility, you can sit this one out.
Expiration Date: October 21, 2022
Step 1: Buy 1 $175 strike call option (delta 0.01) for $12.
Step 2: Sell 1 $145 strike call option (delta 0.15) for $126.
Step 3: Set up a buy stop order for 100 shares for $144 to cover
Credit received: $126 - $12 = $114 per spread
All in all, make sure to see if this trade fit your own risk tolerance. You can also tweak some of the numbers around so you feel more comfortable. And of course, you can always practice these trades in a paper trading account to understand the numbers better.
As always, please don't get too greedy. Many of you made thousands of dollars during the downward market in the first half of the year. However, some of you had too many spreads open and weren't able to cover yourselves when we had a reversal back up.
Remember that the markets will eventually go back higher in the long run, so it's important that you prepare yourself when this happens.
Trade responsibly and stay patient!
-Steve and the Call to Leap Team
The following article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.