Credit Spread on M – 3.2% potential income return in 36 days

On August 13, 2020, we sold an additional bull put credit spread on M stock with an expiry set in the next 36 days. For this trade, we get a premium of $24 (before commissions)

M stands for Macy's, Inc. is an American holding company founded by Xavier Warren in 1929. Upon its establishment, Federated held ownership of the regional department store chains Abraham & Straus, Lazarus, Filene's, and Shillito's. 

Here is our trade setup:

  • BOT 1 M SEP 18 '20 - 6 + 5 Put Bull Spread  -0.24 USD 

For this trade, we got a premium of 19.2 USD (after commissions) or a 3.2% potential income return in 36 days.

These trades come as the #26 and #27 in the month of August, and if we stick with our trading plan for this month, the premium generated from this trade makes us about 2.56% from our $750 monthly goal, while in total we have already reached 51.44% from our monthly goal so far.

What happens next?

On expiry date (September 18, 2020) M is trading above $6 per share -  options expire worthlessly and we keep premium - if M trades under $6 on the expiry date, we get assigned.

But as we already have collected a premium of 0.19 per share, our break-even price for this trade then is $6-$0.19 = $5.81

In other words, M can fall from the current price of $6.97 way down to $5.81 and we will still be break-even

As we are selling credit spread here, in case M suddenly drops bellow our second bought put at the strike price $5 it will help to mitigate risk, in other words - selling credit spreads has a lot of advantages.

Selling credit spreads with M stock
Selling credit spreads with M stock
  • Running Total  4 Trades since August 10, 2020
  • Options Income: $39