Credit Spread on AAL – 1.38% potential return in 2 days

On July 22, 2020, we sold an additional bull put credit spread on AAL stock with expiry in the next 2 days.

Here is our trade setup:

  • BOT 1 AAL JUL 24 '20 - 11 + 10 Put Bull Spread  -0.20  USD  

For this trade, we got a premium of 15.2 USD (after commissions) or 1.38% potential income return in just 2 days. 

These trades come as the #27 and #28  in the month of July, and if we stick with our trading plan for this month, premium generated from this trade setup makes us about 2.17% from our $700 monthly goal, while in total we have already reached 88.06% from our monthly goal.

Covered Call Trade Idea with Weekly Options - Generate ~$60/week from American Airlines Group (AAL) Stock

We like selling credit spreads, as we can save on cash locked for margin. Selling 1 dollar wide credit spread we had to put on lock about $89. If we were selling just a put our margin impact would be about $250. Selling credit spreads can help save on margin impact. 

What happens next?

On expiry date (July 24, 2020) AAL is trading above $11 per share -  options expire worthlessly and we keep premium - if AAL trades under $11 on the expiry date, we get assigned.

But as we already have collected a premium of 0.15 per share, our break-even price for this trade then is $11-$0.15 = $10.85

In other words, AAL can fall from the current price of $11.34 down to $10.85 and we will still be break-even

As we are selling credit spread here, in case AAL suddenly drops bellow our second bought put at the strike price $10 it will help to mitigate risk, in other words - selling credit spreads has some advantages.

Selling Credit Spreads with AAL stock
Selling Credit Spreads with AAL stock

  • Running Total  4 Trades since July 10, 2020
  • Options income: $41