Hitting a Double: The BCI Trade Management Calculator in Action – July 11, 2022
“Hitting a double” involves buying back the short call using our 20%/10% guidelines and then re-selling that same option when share price recovers. On 3/13/2019, Mario was kind enough to share with us his trades with SPDR S&P Biotech ETF (NYSE: XBI) where he astutely applied this exit strategy.
Hitting a double trade overview
- 2/26/2019: 300 shares XBI purchased at $90.25
- 2/26/2019: Sell-to-open 3 contracts of the April 21, 2019 $92.00 calls at $1.50
- 3/6/2019: Buy-to-close the $92.00 calls at $0.15 (10% guideline)
- 3/13/2019: Sell-to-open the $92.00 calls at $0.55
- 3/21/2019: XBI price is $91.69 at expiration
- 3/21/2019: $92.00 calls expire worthless
XBI: Classic V-Shaped Chart Pattern
BCI Trade Management Calculator: XBI trade entry
BCI Trade Management Calculator: XBI initial calculations
The spreadsheet shows an initial time-value return of 1.70%, 11.28% annualized based on a 55-day trade with an additional upside potential profit of 1.90% if share price moves up to the $92.00 out-of-the-money call strike.
BCI Trade Management Calculator: XBI adjustment entries
Hitting a Double generated a new credit of $40.00 per-contract ($55.00 – $15.00); $120.00 for the 3 contracts (less tiny trade commissions).
BCI Trade Management Calculator: XBI final results
The final trade result after trade adjustments is 3.70%%
Discussion
The Hitting a double exit strategy improved an initial time-value return of 1.70% to a final return of 3.70%. This includes an unrealized share appreciation of 1.60%.