I had a PLTR trade (short 10 contracts of Jan. 17, 2025 call, strike $70, for $4014) due to expire today. PLTR is trading ~$71/sh, above my strike price. So I bought back the short call (#1350) and sold 10 contracts of PLTR long call (strike $75, exp. Jan. 16, 2026). This is called a diagonal credit call spread. Net income: $15.95/sh, or $15950 for 10 contracts. The income from the sale of $70 call was ($4014-1350=$2664). The long call just sold has a strike of $75. The margin requirement for 1000 shares of PLTR is $21000 (plus interest)
End result:
1. If PLTR reaches $75 by Jan. 16th, 2026, my total return for this trade will be: 15950+2664+3500 (the price appreciation to $75 from PLTR current price) = $22114. Subtracting the margin interest payment, and divided by the margin requirement, the annualized return on investment (ROI) is ~100%. Remember, this is slightly out of the money (the strike price is near the current stock price) call (slightly bullish call). Also, I don’t have to management it for a year! (I have quite a busy schedule.
Downside? If US economy goes south, or if PLTR goes south…
Another advantage: this sale brings in more cash which I can re-invest to generate more income.
