Here was the original trade in BA:
Sell to Open BA Aug 210/220 Call Spread
Tier 1: Enter at 1.80, Close at 0.80
Tier 2: Enter at 2.40, Close at 1.80
Tier 3: Enter at 3.00, Close at 2.40
BA has since rallied and overtaken the call spread on earnings:
As it stands right now, the trade is nearing full loss.
We are going to work back some of the losses, but first I want to warn you…
Don’t try to revenge trade this. We’re not looking to get this back to a winner. That means you don’t add any more spreads, and you don’t try to go “all in” at once.
Odds are this stock will continue higher for the next few days and then go sideways for a while.
So let’s talk about what we’re working with.
The current spread value is sitting at 9.20.
That means tier 1 is down 740, tier 2 is down 680, and tier 3 is down 620.
On average, it’s a per-spread loss of 680.
What we are going to do now is close out the trade, sell put spreads, and scale into some call spreads.
BA Trade Adjustment
Buy to Close BA Aug 210/220 Call Spread @9.20
Put Spread Sales
Sell to Open Full Size BA Sep 210/200 Put Spread @0.70
Buy to Close BA Sep 210/200 Put Spread @0.20
Call Spread Sales
Sell to Open BA Sep 240/250 Call Spread
Tier 1: Enter at 1.30, Close at 0.80
Tier 2: Enter at 2.00, Close at 1.30
Tier 3: Enter at 2.50, Close at 2.00
Notice how we aren’t trying to recoup our losses by going “all in” on the short side again. We’re still using a scaling protocol.
Now if everything goes according to plan, we’ll capture 0.50 of premium from the put side, then an average of 0.56 from the call spread side. That’s a net of about 1.00, which reduces our loss to 5.80. From there we’ll look at something in October if the trade setup is there.