This article is about a trade I entered on UNH which made about 96% ROI in 21 days.
On 27th Dec, Friday, UNH chart catches my attention. I assessed the chart and took the outlook that price should go up from the current levels before earning announcement on 16 Jan 2025, based on the following considerations:
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Price had been oversold for the past few weeks and looks like found its bottom around $476.43.
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There is no major change to UNH business and the current price of $509 seems to be undervalue.
Technical analysis of the UNH chart.
So, I decided to opened a Bull Call Spread of strike price $515/$525, DTE: 17 Jan 2025 (during the earning announcement week). The trade cost me $820 for 2 contracts. I was thinking of ways to reduce this cost. And I wondered, should I opened a Cash Secured put, Bull Put Spread or Bear Call Spread? I decided to opened a Bear Call Spread of strikes $560/570 at the same DTE as the Bull Call Spread, collecting $160 credit for 2 contracts. My considerations for choosing Bear Call Spread are:
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I excluded cash secured put because I don’t have enough capital to own 100 shares of UNH.
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I excluded bull put spread because I cannot find a good support levels with reasonable credits. Furthermore, price may continue the down trend which may increase my risk.
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Bear call spread seems to have higher probability of winning. This is because, for the price to reach the short call of bear call spread of $560, it has to pass through a few resistance, namely, 21 EMA of $524.48, 200 moving average of $541.16 and support level of about $555.
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If I opened bear call spread and price goes down, I am risking $660, which is approx. 1.5% of my total capital. This is within my risk appetite.
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If price falls between $525 to $560 on expiry date of 17 Jan, my max reward is $1,340. This is approx. 2X my risk. Pretty wide range of winning correct?
Between 14 to 16 Jan, the price reaches around the sweet spot and I decided to close my trades to avoid the risk of earning announcement causing price to move against me. There are some luck with my closure and I managed to profit about $638 (ROI 96%) in total.
I closed my trades during the 3 days.
My real money trades. Profited $638.
In summary, I have presented a method using option strategies for risking a small capital for potentially high returns. And, you can also decide a price range for higher probability of success.
Comment below if you have any queries. If response is good for such article, I will share more review of my option trades (lost or profits), for educational purpose.
Do also comment below if you have a stock in mind and would like to use options strategies. I may write an article of your suggested stock for discussion and education within this community 😊.
@ArcherWG @Aqa @DeltaDrift @Dan1192 @jace0777 @Kashcash @KSR @sYDraLz @Terra Incognita @ZEROHERO @SPACE ROCKET @SPOT_ON @TigerOptions
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