On August 18, 2020, we sold an additional bull put credit spread on AAL stock with expiry in the next 24 days.
Here is our trade setup:
- BOT 1 AAL SEP 21 '20 - 11.5 + 10.5 Put Bull Spread -0.24 USD
For this trade, we got a premium of 19 USD (after commissions) or 1.66% potential income return in 24 days.
These trades come as the #36 and #37 in the month of August, and if we stick with our trading plan for this month, the premium generated from this trade makes us about 2.53% from our $750 monthly goal, while in total we have already reached 71.04% from our monthly goal so far.
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 the expiry date (September 11, 2020) AAL is trading above $11.5 per share - options expire worthlessly and we keep premium - if AAL trades under $11.5 on the expiry date, we get assigned.
But as we already have collected a premium of 0.19 per share, our break-even price for this trade then is $11.5-$0.19 = $11.31
In other words, AAL can fall from the current price of $12.6 down to $11.31 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 $10.5 it will help to mitigate risk, in other words - selling credit spreads has some advantages.
- Running Total 8 Trades since July 10, 2020
- Options income: $86