Naked Put on BAC - Potential income return 0.98% in 4 days

On July 20, 2020, we sold 1 naked put on BAC stock with a strike price at $23 with expiry in next 4 days (July 24) and get for that $0.25 premium (before commissions)

We call these trades naked because we are trading on margin, in case of an assignment we will borrow from broker funds to finance the purchase. 

This trade comes as the #23 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 3.22% from our $700 monthly goal, while in total we have already reached 74.91% from our monthly goal.

As we are holding 1 covered call position with BAC and we are losing there on price, we decided to play a bit aggressive and we are actually looking this naked put to get assigned to:

  • lower our total BAC cost basis
  • sell additional covered calls 

We bought 100 shares of BAC at the start of June paying $28.67 per share. Unfortunately BAC stock fell to the price levels of $23-$24 soon after, and now we are looking like bag holders. 

Bank of America stock price as of July 20, 2020
Bank of America stock price as of July 20, 2020

With BAC price as low as $23 it's hard for us to find decent premiums

In case we will get assigned at $23, we will then have 200 shares with an average price of $25.84. This is much better and gives as some room for maneuvrs.

Here is our trade setup:

  • SLD 1 BAC JUL 24 '20 23 Put Option  0.25 USD

what can happen next:

BAC is trading above our strike price of $23 at expiry date (July 46, 2020), in such scenario, we keep the premium/ Our max gain is already realized: $22.4, or 0.98% potential income in 4 days if the option contract expires worthless. Not the biggest addition to the income, but every bit counts.

In case BAC is trading below our strike price of $23, we will get assigned 100 shares of BAC at the strike price $23 per share

Our break-even price: $22.78

Selling covered calls and puts with BAC stock
Selling covered calls and puts with BAC stock
  • Running Total  7 Trades since June 8, 2020
  • Options income $112