Credit Spread on AAL – 1.84% potential return in 30 days

On August 26, 2020, we sold another bull put credit spread on AAL stock with expiry in the next 30 days.

Here is our trade setup:

  • BOT 1 AAL SEP 25 '20 - 11.5 + 10.5 Put Bull Spread  -0.26  USD  

For this trade, we got a premium of 21.20 USD (after commissions) or 1.84% potential income return in 30 days. 

These trades come as the #52 and #53 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 2.82% from our $750 monthly goal, while in total we have already reached 117.46% from our monthly goal so far.

What happens next?

On the expiry date (September 25, 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 0.22 per share, our break-even price for this trade then is $11.5-$0.19 = $11.29

In other words, AAL can fall from the current price of $13.30 down to $11.29 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.

Selling Credit Spreads with AAL stock
Selling Credit Spreads with AAL stock
  • Running Total  10 Trades since July 10, 2020
  • Options income: $107