On Friday 8/18/2018- I wanted to try a new strategy for me in buying a vertical call spread to bet that semiconductors are going to stay in a range and if it goes up or down or way higher, I end up making money. Currently SMH stock is worth 102.83$ per share and with this strategy, I will break even if stock goes to 96.57 per share which is located right at support #2, and if it bounces at support #1, This trade will get to make money immediately. I bought the 95$ call and I sold the 97$ call for a net debit of 1.57$ per contract. I bought 2 contracts so that means I am investing 314$ dollars for this trade. This trade expires October 19th, 2018- and if this trade goes to 110$ in the immediate future (2 weeks) this trade will have a net profit of 70$ = 22% gain. If I hold this trade to expiration and the stock stays above 96.57, the option will expire with 86$ profit. As you can see that my reward is somewhat small but the probability of this trade working in my favor is pretty high. This trade will allow SMH to fall 6% and this trade will still make money. The risk to this trade is if SMH falls right to support 96.30 and stays there then I could lose my entire investment of 314$.
Comment:
Just updating my trade as I closed a debit spread for profit this week. I bought a debit spread for 314$ and I sold it 7 days later for 346$. That's a profit of 32$ or 10.1%. My initial target was for 22% over the longterm, but this week SMH went straight up and I sold at share price 105.88. So I decided to take a nice pain free profit. Stay up to date on my other trades.