Credit Spread on NIO – 1.45% potential income return in 10 days

On August 11, 2020, we sold a bull put credit spread on the NIO stock with an expiry set in the next 10 days. For this trade, we get a premium of $0.23 per share (before commissions)

NIO is a Chinese automobile manufacturer headquartered in Shanghai, specializing in designing and developing electric autonomous vehicles. 

Here is our trade setup:

  • BOT 1 NIO AUG 21 '20 - 12.5 + 11.5 Put Bull Spread  -0.23 USD 

For this trade, we got a premium of 18.2 USD (after commissions) or a 1.45% potential income return in 10 days. That's more than a dollar per day!

These trades come as the #22 and #22 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 2.42% from our $750 monthly goal, while in total we have already reached 46.85% from our monthly goal so far.

What happens next?

On expiry date (August 21, 2020) NIO is trading above $12.5 per share -  options expire worthlessly and we keep premium - if NIO trades under $12.5 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 $12.5-$0.18 = $12.32

In other words, NIO can fall from the current price of $13.5 way down to $12.32 and we will still be break-even

As we are selling credit spread here, in case NIO suddenly drops bellow our second bought put at the strike price $11.5 it will help to mitigate risk, in other words - selling credit spreads has a lot of advantages.

Selling credit spreads with NIO stock
Selling credit spreads with NIO stock
  • Running Total  2 Trades since August 11, 2020
  • Options Income: $18