Covered Call on HTZ - Potential income return 32.49% in 11 days

On May 18, 2020, we bought on margin 110 shares of HTZ stock (Hertz Global Holdings Inc) at New York's stock exchange, paying $3.17 per share

HTZ seems is facing bankruptcy threats, and I must admit this is one of the most speculative trades I've done lately - there is a huge chance of the company going bankrupt - will it happen in the next 11 days? Not so sure. Could share price drop from $3.17 down to $2 or $1 in the next 11 days? You bet.

Hertz Could File for Bankruptcy

This is not a trade recommendation!

When writing covered calls, we prefer to write them on good dividend stocks.HTZ is not a dividend stock, and now it's complicated to tell is this even a good company. But anyhow, we did take the risk.

Here is our trade setup

  • BOT 100 HTZ Stock 3.17 USD
  • SLD 1 HTZ MAY 29 '20 3.5 Call Option 0.70 USD

what can happen next:

HTZ is trading below our strike price of $3.5, in such case, we keep the premium and sell more covered calls to lower our cost basis. 

In case HTZ is trading above our strike price of $3.5, our shares get called away at strike price $3.5 and we realize our max gain $1.03 (3.5-3.17+0.7) times 100 - $103 or 32.49% potential income in 11 days

Now, we face a risk HTZ filing for bankruptcy in the next 11 days, if so - it's too much unknown yet. 

Our break-even price: $2.47

This means HTZ can fall way down to $2.47 per share and we still will be break-even from this trade, and if covered calls will still be an option after 11 days, we will sell more covered calls to lower our cost basis. 

If HTZ fall into the price range of $1.5-$2 and company avoids filing for the bankruptcy we might consider doubling up our position with HTZ

Selling covered calls on HTZ

Potential income return 32.49% in 11 days
Break-even: $2.47

  • Running Total  1 Trades since May 18, 2020
  • Trade P/L $68, with capital at risk $317