As June ended we looked around at some of the popular trades at the time (dividend yield, staples, utilities) and tried to apply that to some names that perhaps had been overlooked. Target fit the bill as it had recently revisited its 2016 lows on selling in early June but held that level fairly well and looked poised for a run back towards 74 or higher. Here was the original trade from June 28th:
*TGT ($70) Buy the July 8th weekly 72 / August 70 call diagonal call calendar for $2.15
Once the July 8th calls rolled off worthless we rolled the short strike up and out, creating a vertical call spread in August. From July 19th:
Versus 1 August 70 call with a cost basis of 2.15 (currently worth 4.25) sell to open the August 76 call at .75
*New Position – TGT ($73.80) Long the August 70/76 call spread for 1.40 (currently worth 3.50)
The stock is even higher now, today trading at 75.30. And at this point the August 70/76 call spread, with our cost basis of 1.40 is now worth about 4.25.
We’re going to take the money and run here. Target has been fairly volatile after it’s almost straight line run from 66 to 76 and just last week had a day where it gapped lower to 72. So we’ll be disciplined here and not greedy and close the position for a nice profit:
UPDATE – Sold to close the TGT (75.30) Aug 70/76 call spread at 4.25
This books profits of 2.85 from what was currently at risk (1.40) and profits of 2.10 from what was originally risked back in June (2.15). This is leaving a bit of possible profits on the table as it can be worth up to $6 if above 76 on Aug expiration. And even right now, it’s intrinsically worth 5.30. But it’s tough to predict what will happen in the next 2 weeks into expiration so no need to risk the profits.