Into year end we featured a number of calendars on the site that looked to target mildly bullish moves into year end and further upside after the calendar change. Those typically took the form of selling Dec calls to finance Jan or farther out. It’s a strategy that we like to take advantage of the slow trading at the end of the year and the potential for a breakout into the new one. We’ve posted updates on a number of these trade ideas lately. One other trade idea I wanted to check back in on started out differently, as a simple call vertical in December in Starbuck (SBUX) and after its initial and profitable move, we updated to turn it into a calendar, and then once again back into a vertical. The various updates demonstrated a way to keep a bullish position on while removing the entire risk and booking profits along the way. Let’s recap how it started, from October 27th:
Buy the SBUX ($55) Dec 55/60 call spread for 1.30
- Buy to open 1 Dec 55 call for 1.47
- Sell to open 1 Dec 60 call at .17
After a quick move higher in the stock to $58, the trade had a nice profit and we updated with a roll idea, from November 9th:
For those looking to extend the view while taking most of the profits, one roll to consider is to sell the Dec 55 calls at a profit, and use some of that to buy the Jan 60 calls for .65, creating a Dec/Jan 60 call calendar for a credit. That risks some of the profits but cannot become an overall loser. And a move higher towards 60 by Dec expiration set’s up for another roll out into January and a possible breakout into 2018.
That roll worked out pretty perfectly as the stock was 60 on Dec Expiration, providing a chance to book even more profits and roll out to a January vertical for a credit, basically a risk free look on more upside into January expiration. From Dec 5th:
as we get closer to Dec expiration on the 15th we can then close the Dec 60 calls, booking even more profits) and roll them out and up in January, creating a Jan 60/62.50 call spread at a credit
If you look on the chart the stock behaved pretty well, with a move towards 60 into Dec expiration, a slight pullback and then a breakout in January:
Now with the stock 61.25 and the Jan calls expiring, the final position is worth 1.25 and can be closed. This adds 1.25 to the total profits booked along the way. The key here is the rolls combined to earn several dollars in profit, and reduced risk each roll until it was essentially a free look. This is a good way to manage risk, book profits and continue a bullish view that is unique to options.