Markets are closed on Monday but we will still meet for a short lesson.
We own shares of DELL, and the stock has been on fire lately. Today, we sold a far out-of-the-money bear call credit spread against the position. If the stock continues to surge higher, gains in the shares can help offset potential risk in the spread. If the stock cools off or consolidates, the bear call credit spread can expire for a full profit, helping reduce some of the risk on the stock position.
Sell to open: DELL June 18th (monthly) 380.00 strike call
Buy to open: DELL June 18th (monthly) 390.00 strike call
Credit: 1.05
Max reward = 1.05 or $105.00 per spread
Max risk = 8.95 or $895.00 per spread
This credit spread is 90 points above the current stock price. So, probable to expire OTM but not a sure thing.
Have a great long weekend!