Back on December 26, I published a trade idea on American Electric Power (AEP) built around a clean ascending-channel setup and a defined-risk bull call spread. The thesis was simple: AEP had pulled back toward support inside an established uptrend, and options gave us a way to target an outsized return if the stock rebounded.
Here’s the original trade idea and chart setup: This Option Trade Targets a 143%-247% Return By February 20
On February 4, I closed the trade — not because the thesis failed, but because we’ve already captured a meaningful chunk of the move and the chart is now presenting a new risk/reward picture.
Quick Refresher: The Original Setup
In the original article, AEP was trading around the mid-$115s and the chart showed a well-defined ascending channel. Price had pulled back from the upper boundary and drifted toward the lower rail, which had acted as support multiple times.
Rather than buying shares, the strategy was a bull call spread — a defined-risk options position that reduces cost while still giving us meaningful upside if the stock continues higher.
Trade structure:
- Buy AEP Feb 20, 2026 $115 Call
- Sell AEP Feb 20, 2026 $125 Call
What I Actually Traded (Real Money)
I executed this trade in my account as a one-lot spread. Here are the exact numbers from my fills.
| Item | Details |
|---|---|
| Underlying | American Electric Power (AEP) |
| Strategy | Bull Call Spread |
| Expiration | Feb 20, 2026 |
| Long Leg | Buy 1 AEP $115 Call |
| Short Leg | Sell 1 AEP $125 Call |
| Opened | Dec 26, 2025 |
| Closed | Feb 4, 2026 |
| Net Debit (Cost / Max Risk) | $329.32 |
| Net Credit (Exit) | $618.66 |
| Profit | $289.34 |
| Return on Risk | 88% |
Here’s what the order ledger looks like…
| Date | Action | Contract | Cash Flow |
|---|---|---|---|
| Dec 26, 2025 | Buy to Open | AEP Feb 20 ’26 $115 Call | -$386.66 |
| Dec 26, 2025 | Sell to Open | AEP Feb 20 ’26 $125 Call | +$57.34 |
| Feb 4, 2026 | Sell to Close | AEP Feb 20 ’26 $115 Call | +$721.33 |
| Feb 4, 2026 | Buy to Close | AEP Feb 20 ’26 $125 Call | -$102.67 |
| Totals | Net P&L | +$289.34 |
Why I Took Profits Here… Even Though There Was More Upside Possible
Could I have held longer and tried to squeeze more out of this trade? Absolutely.
But risk management isn’t about maximizing every trade — it’s about stacking strong outcomes and avoiding the situations where a good win turns into a giveback.
At the time I closed the position, AEP was trading around $122. And if you look at the chart at the time of my trade, AEP appears to have carved out a new up-trending channel — and price is now trading near the upper boundary of that newer channel.
When a stock pushes into the upper end of a channel, the reward-to-risk profile changes. Upside becomes more incremental, and the odds of a routine pullback increase. Since this spread still had time left until expiration, I chose the move that let’s me 1) lock in a strong gain, 2) reduce exposure as price presses resistance, and 3) avoid the temptation to turn a big win into a “hope trade.”
The Takeaway
This trade worked exactly the way we want channel-based, defined-risk options setups to work:
- We entered on a pullback toward support inside an uptrend.
- We used a defined-risk bull call spread to control cost and risk.
- We booked a meaningful gain without needing the “perfect” outcome (AEP at or above $125 at expiration).
And now that AEP is near the upper end of a newer up-trending channel, I’m happy to step aside, lock in the win, and keep my powder dry for the next clean pullback setup.
Good trading!
Greg Patrick
Source: Trades of the Day
