By Dmitry Pargamanik
XLF Bull Call Spread Strategy
See More Trade Ideas for XLF
The trade card provides you with the most relevant information in a compact, easy-to-read display. Circled in red, you will easily find how to put on this options trade for XLF. It shows you to buy the 34.5 call and sell the 35.5 call with the same expiration (24-Feb-2023). NOTE: This is a bull call spread, as indicated at the top of the trade card.
Market Price vs Theoretical Value
This section will let you do a quick comparison between the market price and theoretical value. As you can see, the market price is $0.72 vs a theoretical price of $0.76, implying a good buying opportunity.
To get the theoretical value, MarketChameleon.com analyzed historical stock behavior for XLF in similar circumstances and concluded that, given XLF historical stock price drift, the average end value of this spread would be $0.76. Using historical statistics as your guidance, the current market is at a $0.04 discount.
Similar to a casino's statistical advantage over gamblers, trading is all about maximizing your edge. On this XLF trade you have a 5.2% edge, as displayed front and center in this section. After statistically calculating a $0.04 theoretical edge, MarketChameleon.com converts it to a percentage of the amount at risk ($0.72), so you can easily see the edge normalized.
In turn, this conformity will allow you to quickly and accurately compare various XLF trade cards. Think of it as running a casino and only taking bets from the gamblers you want. In technical terms, the theoretical percentage edge value tells you what the percentage discount/premium (to historical value) the current spread is priced.
Historical Win Rate
Here is the final piece of the puzzle for this XLF trade. You would like to know, if you did a similar trade in the past, how often did the stock do what it needed to in order for you to profit? Since the stock is already above your ideal price of 35.50, you have a cushion in the strategy. This means, the stock can decline by -1.2% and you'll still at least break even.
Marketchameleon.com runs a historical analysis based on years of XLF stock returns to calculate how often the stock price achieved this (applying similar circumstances). And as you can see on the trade card, the data simulation shows you that 74% of the time the stock price reached the point where this bull call spread would result in a profit.
Don't Let an Opportunity Pass You By!
How to Find More XLF Bull Call Spread Strategies
And if you want to find more bull call spreads for other stocks, go to the bull call spread screener
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NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.
The information is provided for informational purposes only and should not be construed as investment advice. All stock price information is provided and transmitted as received from independent third-party data sources. The Information should only be used as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments and trading strategies. The Company does not guarantee the accuracy, completeness or timeliness of the Information.