Credit Spread on SNAP – 1.27% potential income return in 24 days

On August 11, 2020, we sold a bull put credit spread on the SNAP stock with an expiry set in the next 18 days. For this trade, we get a premium of $0.31 per share (before commissions)

Snap Inc. is an American camera and social media company, founded on September 16, 2011, by Evan Spiegel, Bobby Murphy and Reggie Brown based in Santa Monica, California. It has three products: Snapchat, Spectacles, and Bitmoji.

Here is our trade setup:

  • BOT 1 SNAP SEP 4 '20 - 20.5 + 19.5 Put Bull Spread  -0.31 USD 

For this trade, we got a premium of 26.2 USD (after commissions) or a 1.27% potential income return in 24 days. That's more than a dollar per day!

These trades come as the #20 and #21 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 3.49% from our $750 monthly goal, while in total we have already reached 44.42% from our monthly goal so far.

What happens next?

On expiry date (September 4, 2020) SNAP is trading above $20.5 per share -  options expire worthlessly and we keep premium - if SNAP trades under $20.5 on the expiry date, we get assigned.

But as we already have collected a premium of 0.26 per share, our break-even price for this trade then is $20.5-$0.26 = $20.24

In other words, SNAP can fall from the current price of $22.16 way down to $20.24 and we will still be break-even

As we are selling credit spread here, in case SNAP suddenly drops bellow our second bought put at the strike price $19.5 it will help to mitigate risk, in other words - selling credit spreads has a lot of advantages.

Selling credit spreads on SNAP stock
Selling credit spreads on SNAP stock
  • Running Total  2 Trades since August 11, 2020
  • Options Income: $26