MongoDB (MDB) hit resistance at the declining 21-day moving average and closed down over 2.5% yesterday.
The Barchart Technical Opinion rating is a 40% Sell with a strengthening short-term outlook on maintaining the current direction.
MongoDB, Inc. provides general purpose database platform.
Its products include MongoDB Enterprise Advanced, MongoDB Enterprise for OEM, MongoDB Professional, MongoDB Stitch, MongoDB Atlas, Development Support, Ops Manager, Cloud Manager, Compass, Connector for business intelligence, and Connector for Spark.
The company serves financial services, government, healthcare, media and entertainment, retail, technology and telecommunications industries. MongoDB, Inc. is headquartered in New York.
Today, we’re going to look at a Bear Call spread trade.
A Bear Call spread is a bearish trade that also can benefit from a drop in implied volatility.
The maximum profit for a Bear Call spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.
MDB BEAR CALL SPREAD
To create a Bear Call spread, we sell an out-of-the-money call and then by another call further out-of-the-money.
Selling the May 17 call with a strike price of $410 and buying the $420 call would create a Bear Call spread.
This spread was trading yesterday for around $1.00. That means a trader selling this spread would receive $100 in option premium and would have a maximum risk of $400.
That represents a 25% return on risk between now and May 17 if MDB stock remains below $410.
If MDB stock closes above $420 on the expiration date the trade loses the full $400.
The breakeven point for the Bear Call spread is $411 which is calculated as $410 plus the $1.00 option premium per contract.
MongoDB reported Q1 earnings per share of -1.03, well below the consensus estimate of -0.71.
Conclusion And Risk Management
One way to set a stop loss for a Bear Call spread is based on the premium received. In this case, we received $100, so we could set a stop loss equal to the premium received, or a loss of around $100.
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.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
