Credit Spread on Macy's (NYSE:M) – 3.3% potential income return in 30 days / 40.12% annualized

On September 30, 2020, we sold a bull put credit spread on M stock with an expiry set in the next 30 days. For this trade, we get a premium of $23 (before commissions)

M stands for Macy's, Inc.  -  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 OCT 30 '20 - 5.5 + 4,5 Put Bull Spread  -0.23 USD 

For this trade, we got a premium of 89.2 USD (after commissions) or a 3.3% potential income return in 30 days.

These trades come as the #42 and #43 in the month of September, and according to our trading plan for this month, the premium generated makes us about 2.27% from our $800 monthly goal, while in total we have already reached 89.41% this month

What happens next?

On expiry date October 20, 2020) M is trading above $5.5 per share -  options expire worthlessly and we keep premium - if M trades under $5.5 on the expiry date, we get assigned.

But as we already have collected a premium of 0.18 per share, our break-even price for this trade then is $6-$0.19 = $5.32

In other words, M can fall from the current price of $4.76 way down to $5.32 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 $4.5 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  6 Trades since August 10, 2020
  • Options Income: $58