Credit Spread on KODK – 4.42% potential income return in 15 days (107.53% annualized)

On September 17, 2020, we sold a bull put credit spread on KODK stock with an expiry set in the next 15 days (October 2). For this trade, we got a $38 premium (before commissions)

KODK - The Eastman Kodak Company is an American public company that produces various products related to its historic basis in analogue photography. The company is headquartered in Rochester, New York, and is incorporated in New Jersey.

KODK stock first appeared on our radar at the end of July, when the stock suddenly jumped from $2 to $30

The reason behind this jump was the promise from the US government to lend about $750 million to KODK to help turn into a pharmaceutical company

The U.S. International Development Finance Corporation said July 28 it planned to sign a letter of interest to provide a $765 million loan to the creator of the “Kodak moment,” to support the launch of Kodak Pharmaceuticals, a new arm of the company designed to produce critical pharmaceutical components, in part to reduce the nation’s reliance on foreign drug sources during the Covid-19 pandemic.

Now in the middle of September, we decided to jump on this stock with the following credit spread:

  • SLD 1 KODK OCT 02 '20 7.5 Put Option 0.97 USD

  • BOT 1 KODK OCT 02 '20 6.5 Put Option 0.59 USD

For this trade, we got a premium of $33.20 (after commissions) or a 4.42% potential income return in the next 15 days.

These trades come as the #21 and #22 in the month of September, and if we stick with our trading plan for this month, the premium generated from this trade makes us about 4.15% from our $800 monthly goal, while in total we have already reached 40.75% this month

What happens next?

On the expiry date (October 2. 2020) KODK is trading above $7.5 per share -  options expire worthlessly and we keep premium, realizing our max potential from this trad. If KODK trades under $7.5 on the expiry date, we get assigned.

But as we already have collected a premium of $33.2 per share, our break-even price for this trade then is $7.5-$0.33= $7.17

As we are selling credit spread, we are trading with protection, in case the stock will drop under $6.5, our second bought put will work as insurance and will minimize our potential loses.

  • Running Total 2 trades since September 17, 2020

  • Options Income: $33