I intend to free up margin for other opportunity hence I close out WMT that I initiated last year. I bought WMT LEAPS and subsequently I sold 2 short term calls against it.

I bought back the 2 calls @ $0.05  when it was far OTM nearing expiration.

This is a calendar spread strategy which is great to deploy when we are slightly bearish (range bounce upward). I will cover this strategy in detail in future post.

 

Let’s compare the profit % that I acquired through pure stock purchase vs the options strategy that I used here.

A) Pure Stock (assume if I purchased stock)

Buy 100 shares of WMT @ $58.60 (margin = $5860) on 20 Oct 2015 and sell @ $65.40 on 22 Feb 2016

Profit = $680 per 100 shares in 4 months

Profit % = +11.6% ($680/$5860 * 100%) in 4 months

B) Options (strategy that I have deployed)

Buy to open 1 contract WMT 45Call Jan 17 @ $14.20 (margin = $1420);

Sell to open 1 contract WMT 62.5 Call Jan 16 @ $0.73 and subsequently buy to close @ $0.05, net credit = $0.68

Sell to open 1 contract WMT 65 Call Jan 16 @ $0.87 and subsequently buy to close @ $0.05, net credit = $0.82.

Sell to close 1 contract WMT 45Call Jan 17 @ $20.10.

Profit = $740 (($20.10 – $14.20 + $0.68 + $0.82) *100)  per contract in 4 months

Profit % =  +52.1% ($740/$1420 * 100%) in 4 months.

Have fun! 🙂