On July 9, Tony Zhang recommended a bullish options trade in Southwest Airlines Co (NYSE: LUV). Since then the stock has been trading flat so he suggested some changes on the Friday’s edition of CNBC’s “Options Action”.
Back in July, he bought the September $52.50 call for $3 and sold the July $56 call for 60 cents. The July call has now expired and he is holding the September $52.50 call, with an entry price of $2.40. Zhang thinks that both technical and fundamental thesis are still standing so he wants to buy more time by selling the September $50/$55 strangle.
He wants to sell the September $50 put for $2 and the September $55 call for 80 cents. With the premium collected, he would bring the trade to a credit of 40 cents, but he would have to buy Southwest Airlines at $50 if it drops to $50 or lower at the September expiration. If the stock stays between $50 and $52.50, Zhang would make 40 cents. If it trades higher, to $55, he can make $2.90.
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