Naked Put on SDC - Potential income return 8.24% in 28 days

On May 29, 2020, we sold 1 naked put on SDC stock with a strike price at $6.5 and get for that $0.536 premium (after 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. 

We have been selling puts on SDC stock since the end of April 2020, as our previous puts expired today, we decided to keep selling put options to generate additional income from this stock. 

SDC stands for SmileDirectClub - a teledentistry company listed on Nasdaq. According to Google, it has a market capitalization of some 2.9 bln. Impressive.

SDC stock price as of May 29, 2020
SDC stock price as of May 29, 2020

Here is our trade setup:

  • SLD 1  SDC JUN 26 '20 6.5 Put Option  0.56 USD

For this trade, we got a premium of 56 USD (before commissions) or an 8.61% potential income return in 28 days.

So what happens next?

If SDC is trading above our strike price of $6,5 at expiry date (June 26, 2020), in such a scenario, we keep the premium and most probably sell more naked puts to generate additional income. Our max gain is already realized: $53.6, or 8.24% potential income in just 29 days if the option contract expires worthless.

In case SDC is trading below our strike price of $6.5, we will get assigned 100 shares of SDC at the strike price $6.5 per share

Our break-even price: $5.96

Selling naked puts with SDC

  • Running Total  5 Trades since April 27, 2020
  • Trade P/L $157,
  • current capital at risk $650