Credit Spread on NIO – 1.85% potential income return in 21 days

On August 14, 2020, we sold a bull put credit spread on the NIO stock with an expiry set in the next 21 days. For this trade, we get a premium of $0.27 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 SEP 4 '20 - 12 + 11 Put Bull Spread  -0.27 USD 

For this trade, we got a premium of 22.2 USD (after commissions) or a 1.85% potential income return in 21 days, if the options are going to expire worthlessly. That's more than a dollar per day!

These trades come as the #31 and #32 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 2.96% from our $750 monthly goal, while in total we have already reached 63.7% from our monthly goal so far.

What happens next?

On expiry date (September 4, 2020) NIO is trading above $12 per share -  options expire worthlessly and we keep premium - if NIO trades under $12 on the expiry date, we get assigned.

But as we already have collected a premium of 0.22 per share, our break-even price for this trade then is $12-$0.22 = $11.78

In other words, NIO can fall from the current price of $13.2 way down to $11.78 and we will still be break-even

Selling credit spreads with NIO stock
Selling credit spreads with NIO stock

  • Running Total  4 Trades since August 11, 2020
  • Options Income: $40