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mathetes: In your case, it sounds like you were hoping for a lot to happen in a relatively short time (I always go out as far as possible too; didn't mention that). So you had higher potential reward for higher risk, with the risk being compounded by the shortness of time allowed.

I know you've written about your love affair with BCSs, and I share your enthusiasm. It would appear, though, that we go about that affection in quite different styles. Or was this DMTK spread an outlier even in your portfolio?


I wrote this about the trade in my tracking spreadsheet on the day it executed: Added to Saul's board for consideration on 5/31. 53% off 52 week high. Highly recommended on TipRanks. Never failed historically when trading at this much off 52-week high. High Risk = High Reward.

I entered the trade with DMTK at $40 (it executed with DMTK at $38.50). It fit 2 of 3 of my criteria:
--highly recommended by TipRanks ($65 avg price target) and/or followed on Saul's Board and/or MF recommended
--down 53% from 52-week high
--six-month historical success rate of 60% overall and 100% when trading this far below 52-week high (with a 12.5% gain needed to exceed the upper call and 4.3% gain to breakeven)
--max return of 192% or 350% ARR
--based on above, I applied an 80% probability of success to this trade for a potential 280% ARR

My measuring stick for high-risk trades is potential 175% ARR, so if fit well into my bucket of high-risk trades. I know the loss rate will be higher (maybe even closer to 50%) but my analysis says the higher returns should more than offset. We shall see as more and more BCS trades come to fruition.

My overall portfolio stats for 66 spreads are 36.3% average debit, 12.3 years to expiration, and projected risk adjusted ARR of 140%. I have "safe" names such as AAPL, SHOP and NFLX and other high-risk such as FUBO, SKLZ, UPST, and SMRT. The average for my open spreads is (as of last Friday) 10% above the lower call and 2% below the upper call. The XIRR on the 8 spreads that have closed is 1503%. I expect that number to fall dramatically as time passes and my loser trades begin to factor in.

I've also been working on a new portfolio of combo trades where I'm using the credit from a bull put spread to pay the debit on a bull call spread. More on that later.

--John
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