Credit Spread on AAL – 2.4% potential return in 28 days

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.

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 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.

Selling Credit Spreads with AAL stock
Selling Credit Spreads with AAL stock
  • Running Total  6 Trades since July 10, 2020
  • Options income: $67