Today’s trade idea for option traders: Bed Bath and Beyond (trade closed)
My last trade on BBBY didn’t work out due to negative fundamental news and I got 100 shares assigned. But meanwhile, the tide has turned to my favor and I could get rid of the shares with a profit. Check out the updated article, folks. The price level of BBBY seems to stabilize after the short squeeze. But the implied volatility on it is still relatively high so it’s a must have trade on Bed, Bath & Beyond. So let’s check it out.
The information I am giving you in this article is for informative purposes only and should not be treated as investment advice. The information presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in trading activities related to the information in this article should do their own research and seek advice from a licensed financial adviser.
Type of a trade: Cash secured put
Alternatively: Bull put spread
Expiration: 21st January 2021 (73 days)
Premium for 1 option: between $185 and $197 on the day this article was published
Margin: apprx. $250 on the day this article was published (Please keep in mind: the margin size depends on your account size. The smaller your account size the higher the margin requirements. The margin I’m publishing here is the margin based on my account size. Therefore, it could also happen that with a small account, you would see a margin of more than $2000)
Pros for this trade:
– Based on the signal I get (ADX-Indicator), the price should continue to move at least sideways and to stay above the strike so we can get rid of the put option when the time is right
– Improved fundamentals could support the price of this stock and keep it above the strike
– An great IV Rank (around 57) and an outstanding IV Percentile (around 98%)
Cons for this trade:
– A relative high Fear & Greed Index of 85 which increases the risk of a stronger correction in markets in the near future
– Currently, BBBY does not pay any dividend so in case you get the stock assigned, you would have to wait (maybe for a longer time) without any benefits until you can offload it with a profit
– As trading with options is also a dealing with probabilities, every of my assumptions could turn out as a wrong estimation so at the end the stock would land in the money and you would close the position with a loss in case you don’t want to keep the stock
Result of this trade: Like on the previous trade on BBBY, the trade idea didn’t work out neither, and you would have get the stock assigned in case you followed the trade idea.
Realized profit for 1 option: between $185 and $197 (full premium as the stock landed in the money)
Days in the trade: 52 (of total 52 days)
Summary: This is again another example to show you that there is no 100% hit rate possible. It’s absolutely normal that trade ideas don’t work out. That’s why it’s also very important to have a strategy and a careful consideration before you enter a trade. Ask yourself questions like: “Do I want to sell options on stocks or rather on futures? What will I do (or better: what must I do) when the plan wouldn’t work out? Can I afford to get the stock assigned or need I to close the position with a bearable loss?”, and so on.
What’s next: Because of the risk of landing in the money, I usually prefer to sell options on dividend payers. In this case, I again made an exception and sold an option on a stock of a company with a suspended dividend. The reason for this is that in my opinion, BBBY still has good chances to become a profitable turn around. This fact could bring in a nice profit by an increasing stock price. The only thing I have to do is to wait (even without any benefits in the mean time).
If it wouldn’t work out, I’d lose $1700 but also in this case, this loss would have just a little impact on my account because I did my homework regarding risk management*. In addition, this loss would have a positive effect on the tax burden.
Just 7 days after I got the stock assigned, the price got pushed higher up to $18, and I could get rid of the stock.
Would you like to learn how to trade options in a serious way without false promises and beyond the gambling ambitions of the masses? Then enroll in an online course on Udemy*. Also check my course I created to show you how to profit from crashes in the stock markets with reversal signals*.
*Affiliate link: when you click on this link, no additional costs would arise for you and the product or the service will not become more expensive. When you decide to buy the product or use the service, I’ll get a little benefit from the provider which I would reinvest to keep this blog alive.