Entered a Micron Bull Call Spread

I continue to work on the strategy of Bull Call Spreads. I have 3 that will expire today and I just entered 1 with Micron (MU) that will expire next Friday.

With Micron in the area of $93.10 per share I bought 2 MU 3/22/24 $90 Calls for a premium of $6.40. Along with this long Call I also sold 2 MU 3/22/24 $93 Calls. For this Short Call I received a premium of $5.10. Getting into these 2 Calls cost me $1.30.

 

Buy 2 MU 3/22/24 $90.00 C @ $6.40

Sell 2 MU 3/22/24 $93.00 C @ $5.10

Net Cost = ($1.30)

Please read my new page Bull Call Spread. In review, I want the stock to close above $93 per share at the close on next Friday, the stock is at $93.10 at the entry of the position. Let’s go over what happens to these 2 Calls if the stock closes above $93. We’ll look at one at a time. With the Long Call I have the right to buy the stock at $90, I’m making at least $3 on that position. I also own the short Call that has me obligated to deliver 200 shares of MU at $93. So, I have the right to buy 200 shares at $90 and I’m obligated to sell 200 shares at $93. These 2 positions cancel each other out and my account is up $300. I DO NOT need the money in my account to buy and sell the stock positions! Remember, the position cost me $1.30 so my profit is $1.70. A quick way to figure out the maximum profit is the difference between the 2 Strike Prices ($3) minus the Net Cost of the position ($1.30). My total profit on the 2 contracts ($1.70 X 200) is $340.

Let’s take a look at the return. The entire Bull Call Spread cost me ($1.30 X 200) which is ($260) for the 2 contracts. I profited a total of $340 with the 2 contracts. To calculate the Rate of Return you divide the profit by the investment, times 100 ($340 ÷ $260 X 100 = 130.7%). OR, $1.70 ÷ $1.30 X 100 = 130.7%.

The Bull Call Spread is a low cost way to bring in a huge Rate on Investment (ROI).

I will continue to work on this strategy and report my results. The bottom line is you must pick a stock that you feel will be above the Short Call’s Strike Price on Expiration Day.

Any questions send me an email.

 

Successful trading,

Steve

The Options Coach