Credit Spread on AAL – 2.47% potential return in 28 days

On July 10, 2020, we sold a bull put credit spread on AAL stock with expiry in the next 28 days.

Here is our trade setup:

  • BOT 1 AAL AUG 07 '20 - 10.5 + 9.5 Put Bull Spread  -0.31  USD  

For this trade, we got a premium of 26 USD (after commissions) or a 2.47% potential income return in 28 days. Almost a dollar per day!

These trades come as the #10 and #11  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 3.71% from our $700 monthly goal, while in total we have already reached 29.11% from our monthly goal.

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

It was agreed to sell credit spread, to 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 (August 7, 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 0.26 per share, our break-even price for this trade then is $10.5-$0.26 = $10.24

In other words, AAL can fall from the current price of $11.90 way down to $10.24 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 $9.5 it will help to mitigate risk, in other words - selling credit spreads has some advantages.

Selling put credit spreads on AAL stock
Selling put credit spreads on AAL stock

  • Running Total  2 Trades since July 10, 2020
  • Trade P/L $26