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New Trade: Bull Put Spread: OCT14 MSFT

This is another test trade I am going to open on Monday if my price limit is met. It is a live test of my squeeze signal reading. Microsoft stock has experienced a strong squeeze lasting roughly a month and a half and recently it shot up to release the squeeze energy.

Will this move last until October? I do not know, but I am going to take advantage of it and open this credit trade – bull put spread.

MSFT Bull Put Spread

Above see the chart of the stock which went sideways for a long time and now broke through the range. As the pressure is up (more buyers) I believe this stock will be pushed higher over time.

Trade Detail

I placed a following order today which should execute tomorrow:

STO -10 MSFT Oct17 14 40/39 put @ 0.38 CREDIT

This means that tomorrow I will:

SELL 10 MSFT Oct17 2014 40 strike puts and
BUY 10 MSFT Oct17 2014 39 strike puts

for LIMIT @ 0.38 CREDIT

 

Max Profit $380 Max profit occurs if MSFT is above 40 on expiration day, which is October 17.
Max Loss $620 Max loss occurs if MSFT is below 39 on expiration day, which is October 17.

 


 

 
 

In many occasions on this blog I advocated having a plan for each trade. So what is my plan for this one?

There are a few outcomes for this trade:

  1. The stock ends above $40 at expiration for a full profit – there will be no need to do anything
  2. The stock ends below $40, but above $39.61 break even at expiration – there will be a small gain (depends where the stock will be). I may close the short put and let the long put expire, or roll the short put down making it a single put selling trade and let the long put expire.
  3. The stock ends below $39.61 break even but above $39 – there will be a small loss. My strategy on fixing this trade would be the same as mentioned above.
  4. The stock ends below $39 at expiration – it is when the full loss occur. I might roll the entire trade lower and collect more in premiums to mitigate the loss.

Since this is a spread trade, there will be no need to do anything with this trade until October, so after selling this spread, I will wait.
 
 





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