Back in June of last year, Option Strategies Insider released the Ultra membership, concentrating on long-term, highly researched options strategies.
The first trade we released was the aggressive risk reversal strategy in the company Baidu (BIDU), a company that had been beaten up recently, but had a promising future ahead.
Here we bought the January 2021 150-strike price call and then sold the January 2021 85-strike price put to help finance the purchase of the call. In total, we paid $2.60 for this trade.
Today this trade is worth $13.80, a great return on investment!
There would be no harm in closing the trade right now and booking that considerable profit, but I think Baidu still has some room to run.
So, what I would like to do is try to work back some of that initial $2.60 that we paid for this trade while giving ourselves the ability to make additional profits on the upside.
Here I just like to sell the February 155-strike call for a credit of $2.10. This will reduce the total cost that I have invested in this trade to only $.50 while giving myself plenty of room to profit on the upside.
Because I own the January 2021 150-strike price call, I am fully protected on the top side, and if the stock were to run up, I would only continue to profit.
If the stock fails to reach the 155-price point by February expiration, and the $2.10 credit is just more money in the bank. Either way, it’s a win-win, which is my favorite type of trade!