Credit Spread on NRZ – 2.31% potential return in 35 days

On July 17, 2020, we sold a bull put credit spread on NRZ stock with expiry in the next 35 days.

Here is our trade setup:

  • BOT  1  NRZ AUG 21 '20 - 7 + 6 Put Bull Spread    -0.21 USD  

For this trade, we got a premium of 16.20 USD (after commissions) or a 2.31% potential income return in 35 days. 

These trades come as the #21 and #22  in the month of July, and if we stick with our trading plan for this month, premium generated from this trade setup makes us about 2.31% from our $700 monthly goal, while in total we have already reached 71.68% from our monthly goal.

It was agreed to sell credit spread, to save on cash locked for margin. Selling 1 dollar wide credit spread we had to put on lock about $89. If we were selling just a put our margin impact would be about $250. Selling credit spreads can help save on margin impact. 

What happens next?

On expiry date (August 21, 2020) NRZ is trading above $7 per share -  options expire worthlessly and we keep premium - if NRZ trades under $7 on the expiry date, we get assigned.

But as we already have collected a premium of 0.162 per share, our break-even price for this trade then is $7-$0.16 = $6.84

In other words, NRZ can fall from the current price of $7.76 way down to $6.84 and we will still be break-even

Selling covered calls and puts with NRZ stock
Selling covered calls and puts with NRZ stock
  • Running Total  10 Trades since April 9, 2020
  • Options income: $235