Credit Spread on SPCE – 1.51% potential return in 21 day

On August 7, 2020, we sold a bull put credit spread on SPCE stock with expiry in the next 21 days.

Here is our trade setup:

  • BOT 1 SPCE AUG 28 '20 - 16 + 14.5 Put Bull Spread  -0.29  USD  

For this trade, we got a premium of 24.2 USD (after commissions) or a 1.51% potential income return in 21 days. That's more than a dollar per day!

These trades come as the #12 and #13 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 3.22% from our $750 monthly goal, while in total we have already reached 25.25% from our monthly goal so far.

What happens next?

On expiry date (August 28, 2020) SPCE is trading above $16 per share -  options expire worthlessly and we keep premium - if SPCE trades under $16 on the expiry date, we get assigned.

But as we already have collected a premium of 0.24 per share, our break-even price for this trade then is $16-$0.24 = $15.76

In other words, SPCE can fall from the current price of $18.25 way down to $15.76 and we will still be break-even

As we are selling credit spread here, in case SPCE suddenly drops bellow our second bought put at the strike price $14.5 it will help to mitigate risk, in other words - selling credit spreads has some advantages.

Selling put credit spreads on SPCE stock
Selling put credit spreads on SPCE stock
  • Running Total  18 Trades since April 27, 2020
  • Options Income: $311