Call Bear Spread on Amazon stock – risking $400 to make $30

On February 6, 2023, I sold 1 call bear spread on Amazon stock with strike prices at $114 and $118 with expiry on March 10, 2022).

A call bear spread is an options trading strategy that involves selling a call option with a higher strike price and simultaneously buying a call option with a lower strike price on the same underlying asset. In this case, I sold a call option with a strike price of $118 and bought a call option with a strike price of $114.

I decided to go for a call bear spread as I don't have actually 100 shares to deliver if challenged. I have only 17.

In case the price of Amazon stock rises and my short call option is exercised, I only have 17 shares, which may result in an assignment, meaning I would have to buy the additional shares at the market price to deliver the shares to the option buyer.

In case of danger, I will roll up and forward the short call option.

Rolling up and forward means I would sell the current option and buy a new option with a later expiration date. This can help to avoid or defer the assignment.

This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset.

here is the trade setup:

• SLD 1 AMZN MAR 10 '23 114 Call Option 0.79 USD

• BOT 1 AMZN MAR 10 '23 118 Call Option 0.46 USD

What happens next?

On the expiry date, March 10, 2023, AMZN is trading under $114 per share -  options expire worthlessly and I keep premium - if AMZN trades above $114 I'm troubled as I need to deliver shares I don’t actually have, to avoid such scenario I will try to roll up the strike price.

In case AMZN would rise to $118 or above at the expiry, I would risk my shares being called away, but as I have only 17 AMZN shares I would have to buy missing shares paying the market price.

Using dollar-cost averaging my average cost per AMZN share is $106.17

For example with AMZN expiring at $118 (my max loss) we would be:

100*114-17*106.17-83*120=-$364.89

My max risk is $364.89 to earn 30$. I assume this is a risk worth taking, as in the case of a sudden stock price rally close to $114, I would try to roll up and forward this position trying to avoid an assignment.

Max loss: $334.89

Break-even price: $114+$0.30= $114.30

• In total: 3 trades since February 6, 2023

• Options premium: $31