Monday.com stock was last Thursday's IBD Stock of the Day, as the stock hit a buy point after a lengthy consolidation period.
According to the IBD Stock Checkup, MNDY stock is ranked No. 14 in its industry group and has a Composite Rating of 97, an EPS Rating of 81 and a Relative Strength Rating of 92.
When it comes to option trading, we normally look at short-term trades — anywhere from one week to one month. Today, we will look at a longer-term bull put spread.
Longer-term option trades tend to move a little slower than shorter-term trades. That allows more time to adjust or close, but also means a lower annualized return.
As a reminder, a bull put spread is a defined-risk strategy. That means you always know the worst-case scenario in advance.
Option Trading: Multiple Scenarios For Spread
This type of trade will profit if Monday.com stock trades sideways or higher, and even sometimes if it trades slightly lower.
With MNDY trading around 197, if we use the Aug. 16 expiration, we can sell a 190 put and buy a 185 to set up the bull put spread. That spread traded around $2.25 late Monday. Keep in mind that liquidity is lower in longer-term options, which means it can be harder to get a good fill price.
Selling this spread would generate roughly $225 in premium with a maximum risk of $275.
If the spread expires worthless, that would be a 81% return in nine months — provided the stock is above 190 at expiration.
The maximum loss would occur if Monday.com closes below 185 on Aug. 16. That would see the premium seller lose $275 on the trade.
Option Trading: Break-Even For Monday.com
The break-even point for the trade is 187.75. That's calculated as 190 less the $2.25 option premium per contract.
I would set am adjustment point or a stop loss if MNDY drops below 190. Otherwise, another good rule of thumb is to limit the loss to the amount of premium received which in this case would be $225.
Sticking to this stop loss level will help avoid large losses if the trade goes south.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
