Naked Put on RIOT - Potential income return 14.24% in 25 days

On July 27, 2020, we sold 1 additional naked put on RIOT stock with a strike price at $2.5 and get for that $0.38 premium (before commissions)

RIOT stands for Riot Blockchain company focused on building, supporting, and operating Blockchain technologies. 

With Bitcoin price raising over $10,000, it give a nice boost to many "so-called" blockchain companies, including to RIOT. The stock price Monday was up by more than 20%. As long as Bitcoin can sustain this price level, we believe the RIOT will follow the pattern. 

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 #34 in the month of July, and if we stick with our trading plan for this month, premium generated from this trade makes us about 5.08% from our $700 monthly goal, while in total we have already reached 105.43% from our monthly goal so far in July. Awesome. 

Last but not least, as we are trading on margin, we have a negative cash balance, before this trade, our USD cash balance was -$1,302 after it is-$1,267 This small trade closes the gap by some 2.73%t. Lovely

Here is our trade setup:

  • SLD 1 RIOT AUG 21 '20 2.5 Put Option  0.38 USD

What can happen next?

RIOT is trading above our strike price of $2,5 at the expiry date (August 21, 2020), in such a scenario, we keep the premium. Our max gain is already realized: $35.6, or 14.24% potential income in 25 days if the option contract expires worthless. 

In case RIOT is trading below our strike price of $2.5 we will get assigned 100 shares of RIOT at the strike price $2.5 per share, in such case we will sell covered calls to lower our cost basis.

Our break-even price: $2.15

Selling naked puts with RIOT stock
Selling naked puts with RIOT stock
  • Running Total  3 Trade since July 15, 2020
  • Options income: $80

We now have three options contracts with RIOT expiring in the next 25 days. Depending on the results (if expires worthless), we might double up and sell 4-5 contracts in the future. Also, we belive the first two contracts are going to expire worthless, not so sure about the last one (today's_