On December 3rd, 2020, we bought 1 debit spread on NYSE:BA stock with an expiry set in the next 43 days. For this trade, we paid a premium of $375 (before commissions).
This trade comes as the #4 in the month of December, according to our trading plan for this month. The income generated from this trade makes us about 0% of our $2000 monthly goal, while in total we have already reached 30% so far. If this trade is successful we will generate 31.25% of our monthly goal, which would put us at 61.25%.
Why a debit spread on Boeing?
Here at Stock Tipz we believe that as time goes on and the world gets closer to a vaccine we should see a bounce in this company. As travel resumes, Boeing should see plenty of new orders for planes and all the other airlines business could rise as well.
On 12/2 there was a news article stating that Ryanair was close to officially placing their order this week. Ryanair is one of Boeing’s largest worldwide customers, the company has a firm order of 135, with 75 options for Boeing’s 737 MAX.
Last month Alaska Airlines agreed to lease 13 Boeing MAX jets, each one of these jets is worth an estimated $125 million dollars. Each one of these orders should bring revenue and the spotlight on Boeing.
Debit spreads allow us to have our chips on the table without spending too much. Being a successful investor is all about risk management and controlling your budget. Without utilizing this strategy the closest strike price we could purchase is the $285.
Here is our trade setup:
- BTO 1 BA JAN15’21 – 235/245C 3.75 USD
- Paid $375 with max profit of $1000($625after cost)
For this trade, we spent of 375USD (after commissions) for a potential return of 166.67% potential income return in 43 days.
What happens next?
On expiry date January 15, 2021 if $BA is trading at $235 per share – our max profit will be reached and we will be able to sell our spread for $1000. If $BA trades below $235 on the expiry date, our option will expire worthless, and we will lose our initial investment of $375. Within the range of $235-$245 we will receive a percentage of our max profit but its dependent of the closing price.
