Options Idea: Buy The Oct '20 JWN Call Calendar Spread @ $2.35

JWN has been a big loser since COVID-19 and is on a long-term downtrend. However, it's been on a short-term uptrend since late August and just blew through its July highs. The next objective will be the early August highs around $17.50. Our goal is to ride the short-term trend for as long as it lasts during September and October. We don’t want to own this stock long-term, but we’ll hitch a ride on this short-term trend with a long-call.

Since we’re not long-term owners of JWN we’re buying an Oct. 16 2020 call and we will sell weekly out of the money calls against it to lower cost basis. Look at the yellow trend line for a reference as to where JWN might be and that’s the area to sell weekly out of the money calls against this long call. Make sure your weekly short calls don't run up against the trendline.

Here’s how we set-up the trade:

• Sold the September 11, 2020 $17.5 Call @ 0.25
  
• Bought the October 16, 2020 $15 Call @ 2.60
  

Our objectives for short call income generation against this position are as follows:

• Initial Objective: $1.23 (Extrinsic Value of Long Call)
  
• Stretch Objective: $2.60 ($0 capital outlay)
  

We on the way toward meeting our initial objective by selling the Sep 11, 2020 call at $0.25 and next week we’ll sell another weekly out of the money call to get closer to our initial objective.

20-JWN-01

• Opening Date: Sep 8, 2020
  
• Expiration Date: October 16, 2020
  
• DTE: 38
  
• IV: 93%
  
• IV Percentile: 56%
  
• Odds of Winning: 36.60% (before selling more short calls)
  
• Odds of Losing: 63.40% (before selling more short calls)
  
• Win: > 17.35 @ Expiration (before selling more short calls)
  
• Loss: < 17.35 @ Expiration (before selling more short calls)
  
• Cash Requirements: $235
  

Chart Legend

• Green Area: 100% Win Zone. If we finish above or in the green area, we’ve made a profit on our trade. Since our position has a long call that means our potential gain is unlimited after Sep 11, 2020. Up to Sep 11, we are limited in our gain by our short call.
  
• Red Area: If we finish in this area we have a loss. The size of the red area is the size of our maximum loss. Since we have no uncovered options, our loss is limited on this trade to the price of our long call minus the credit taking in on our short calls.
  
• 1 standard deviation, 2 standard deviation, 3 standard deviation projections from Opening Date to Expiration Date are included.
  

Make sure to follow us on Tradingview for updates on this idea as we continue to reduce our cost basis in this trade.

Trade active:

We bought back our short September 11, 2020 $17.5 Call @ 0.05 today.

Trade active:

Sold a Sep 18. 2020 $17 call @ $17.

Cost basis now $223.

Comment:

Bought back the Sep 18. 2020 $17 call @ $5. Going to wait to see the move on Monday before selling another call.

Cost basis now at $228.

Trade active:

Sold the Sep 25 $16.5 call @ $26. Cost basis now $202.

Trade closed manually:

9/21/2020 Bought 1 JWN Sep 25 2020 16.5 Call @ 0.04
9/21/2020 Sold 1 JWN Oct 2 2020 15.0 Call @ 0.21
9/22/2020 Sold 1 JWN Oct 16 2020 15.0 Call @ 0.39
9/29/2020 Bought 1 JWN Oct 2 2020 15.0 Call @ 0.04

$150.00 loss.