Naked Put on SDC - Potential income return 5.95% in 22 days

On July 2, 2020, we sold 1 naked put on SDC stock with a strike price at $8 and get for that $0.50 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 #4 in the month of July, and if we stick with our trading plan for this month, premium generated from this trade makes us about 6.8% from our $700 monthly goal, while in total we have already reached 14.2% from our monthly goal in the first two days of July. Amazing.

SDC stands for SmileDirectClub - a teledentistry company listed on Nasdaq.

This is a stock we have been selling puts and covered calls since the end of April 2020 with great success. The fun fact, the last two weeks I have spent at the dentist here in Tbilisi, spending about $450 for several teeth procedures, starting a root therapy, old silver filling replacement with newer ceramic(?), teeth whitening, and more.  While sitting in the dentist's chair, and "enjoying the procedures" I had some time to think about teledentistry. lol

Here is our trade setup:

  • SLD 1 SDC JUL 24 '20 8 Put Option  0.50 USD

We made a little mistake here, it was not intended to place a strike with a value of $8, but this is the little risk we are ready to take (we got paid for the risk some hefty premium.

what can happen next:

SDC is trading above our strike price of $8 at the expiry date (July 24, 2020), in such a scenario, we keep the premium. Our max gain is already realized: $47.60, or 5.95% potential income in 22 days if the option contract expires worthless. 

In case SDC is trading below our strike price of $8, we will get assigned 100 shares of SDC at the strike price $8 per share, in such case we will sell covered calls to lower our cost basis.

Our break-even price: $7.52

Selling naked puts with SDC stock
Selling naked puts with SDC stock
  • Running Total  13 Trades since April 27, 2020
  • Trade P/L $282