On July 24, 2020, we sold an additional bull put credit spread on AAL stock with expiry in the next 28 days.
Here is our trade setup:
- BOT 1 AAL AUG 21 '20 - 10.5 + 9.5 Put Bull Spread -0.30 USD
For this trade, we got a premium of 25.2 USD (after commissions) or 2.4% potential income return in just 2 days.
These trades come as the #32 and #33 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 3.6% from our $700 monthly goal, while in total we have already reached 100.34% from our monthly goal.
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 (August 21, 2020) AAL is trading above $10.5 per share - options expire worthlessly and we keep premium - if AAL trades under $10.5 on the expiry date, we get assigned.
But as we already have collected a premium of 0.25 per share, our break-even price for this trade then is $10.5-$0.25 = $10.25
In other words, AAL can fall from the current price of $11.34 down to $10.25 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.
- Running Total 6 Trades since July 10, 2020
- Options income: $67