Partial Roll forward and down 2 Credit Spreads on SOLO – 0.05% potential income return in 353 days

On April 7, 2021, bought back 2 out of 5 bull put credit spread options on SOLO stock and additionally sold 2 new bull put credit spreads with expiry further out (roll forward) and lower strike prices (roll down). The aftermath of this trade -%5.2(after commissions)

Originally we opened this trade on February 11: Sold 4 Credit Spreads on SOLO – 4.17% potential income return in 15 days, but as our strike price $7 got challenged we decided to roll forward and down: Roll Forward and Down 4+1 Credit Spreads on SOLO – 4.17% potential income return in 64 days and now again, as our strike price $6 got challnged we decided to roll out and forward, but just the partial, we are still looking to accept the rest contracts at the strike price of $6 and start selling covered calls.

Here is our trade setup:

  • SLD    2    SOLO    APR 16 '21 - 6 + 4 Put Bull Spread    -1.195 
  • BOT    2    SOLO    JAN 21 '22 - 4.5 + 2.5 Put Bull Spread    -1.07

The aftermath for this trade, we got a total premium of -5.2 (after commissions) or -0.05% potential income return in 353 days (if options expire worthlessly).In other words, we bought some time and lowered our strike price from $6 to $4.5

What happens next?

On the expiry date (January 21, 2022) SOLO is trading above $4.5 per share -  options expire worthlessly and we keep premium, realizing our max potential from this trade. If SOLO trades under $4.5 on the expiry date, we get assigned.

But as we already have collected a premium of -$0.02 per share, our break-even price for this trade then is $4.5+$0.02= $4.52

As we are selling credit spreads, our max risk is defined, in case the stock will drop below $2.5, our second bought put will work as insurance and will minimize our potential losses.