Let’s take a look at an example of a conservatively bullish trade — a bull put spread.
To execute a bull put spread an investor would sell an out-of-the-money put and then buy a further out-of-the-money put.
Bullish CRWD Stock Option Trade
With the 21- and 50-day moving averages around 200, a bull put spread could be placed by selling the 200 strike put and buying the 195 strike put.
Using the June 18 expiration, this spread was trading for around $1.40 Monday. That means a trader selling this spread would receive $140 in option premium, for a block of 100 stocks, and would have a maximum risk of $360.
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That represents a 38.89% return on risk between now and June 18 as long as CRWD stock remains above 200.
If CrowdStrike stock closes below 195 on the expiration date, the trade loses the full $360.
With earnings expected around June 3, this trade would have earnings risk if held through that date.
The break-even point for the bull put spread is 198.60, which is calculated as 200 less the $1.40 option premium per contract.
Similar Exposure To Owning 66 Shares Of CrowdStrike Stock
This bull put spread trade has a delta of 6, which means it is a similar exposure to owning 66 shares of CRWD stock, although this exposure will change over time as the stock price moves.
A simple stop-loss for a trade like this would be if CRWD stock dropped back below the 50-day moving average.
It’s important to remember that options are risky and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
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