Roll Forward and Down 1 Credit Spread on NIO – 0.1% potential income return in 71 days

On April 5, 2021, we bought back 1 bull put credit spread on NIO stock, and additionally sold 1 new bull put credit spread with lower strikes prices and expiry further out (roll forward and down). The aftermath of this trade $3.6 (after commissions)

Originally we opened this trade on March 11: Sold Credit Spread on NIO – 1.22% potential income return in 29 days

Here is our trade setup:

  • SLD    1    NIO    APR 09 '21 - 42.5 + 41 Put Bull Spread    -1.09    USD 
  • BOT    1    NIO    MAY 21 '21 - 34 + 31 Put Bull Spread    -0.70    USD    

The aftermath for this trade, we got a total premium of 3.6 USD (after commissions) or 0.1% potential income return in 71 days (if options expire worthlessly).In other words, we bought some time and lowered our strike price from $8 to $7

What happens next?

On the expiry date (May 21, 2021) NIO is trading above $34 per share -  options expire worthlessly and we keep premium, realizing our max potential from this trade. If NIO trades under $34 on the expiry date, we get assigned.

But as we already have collected a premium of $0.3 per share, our break-even price for this trade then is $34-$0.03= $33.97

As we are selling credit spreads, our max risk is defined, in case the stock will drop below $31, our second bought put will work as insurance and will minimize our potential losses.