Credit Spread on AMC – 7.82% potential income return in 36 days (79.21% annualized)

On September 24, 2020, we sold a bull put credit spread on AMC stock with an expiry set in the next 36 days (October 30). For this trade, we got a $40 premium (before commissions)

AMC Entertainment Holdings, Inc. is an American movie theater chain headquartered in Leawood, Kansas, and the largest movie theater chain in the world. Founded in 1920, AMC has the largest share of the U.S. theater market ahead of Regal and Cinemark Theatres

here is our trade setup:

  • SLD 1 AMC OCT 30 '20 4.5 Put Option 0.63 USD

  • BOT 1 AMC OCT 30 '20 3.5 Put Option 0.23 USD

These trades come as the #35 and #36 in the month of September, and according to our trading plan for this month, the premium generated makes us about 4.44% from our $800 monthly goal, while in total we have already reached 81.89% this month

What happens next?

On the expiry date (October 20, 2020) AMC is trading above $4.5 per share -  options expire worthlessly and we keep premium, realizing our max potential from this trade. If AMC trades under $4.5 on the expiry date, we get assigned.

But as we already have collected a premium of $35.2 per share, our break-even price for this trade then is $4.5-$0.35= $4.15

As we are selling credit spread, we are trading with protection, in case the stock will drop under $3.5, our second bought put will work as insurance and will minimize our potential loses.

  • Running Total 13 Trades since August 3, 2020

  • Options Income: $200