Partial Roll Forward and Down 4 Credit Spreads on NKLA – 2.92% potential income return in 86 days

On August 16, 2021, I did a partial roll forward and roll down on a credit spreads I established at the end of July on NKLA stock.

While holding 5 credit spreads on NKLA stock with expiry this Friday, and while the stock has been failing through the roof and touching my strike prices, I decided to spread the risk and not take a full assignment of 5 contracts or 500 shares, this Friday, but instead take just 3 contracts and roll forward the rest.

Originally I entered this trade as a 13/11 credit spread. Now with NKLA trading barely above $9, I decided to roll forward some of the contracts

Covered Calls with Reinis Fischer
Sold 5 Credit Spreads on NKLA – 3.7% potential income return in 30 days
On July 21, 2021, I sold 5 bull put credit spreads on NKLA stock with an expiry set in the next 30 days. For this trade, I got a premium of $243 (after commissions) Nikola Corporation is an American company that has presented a number of zero-emission vehicle concepts since 2016. The company has stated on several occasions that it intends to take some ……
Read more

Here is the trade setup:

  • SLD 2 NKLA AUG 20 '21 - 13 + 11 Put Bull Spread -1.98 USD

  • BOT 4 NKLA OCT 15 '21 - 9 + 6 Put Bull Spread -1.06 USD

Here I bought back 2 contracts with the strike prices of $13 and $11, for which I paid $396, and sold 4 additional credit spreads with lower strike prices and with an expiry set in October. For this trade, I got $424 (before commissions)

I did 2 things - lowered the strike prices from $13 to $9; doubled the contract size, to somehow break even the cost

What happens next?

On the expiry date, October 15, 2021, NKLA is trading above $9 per share -  options expire worthlessly and I keep premium - if NKLA trades under $9 on the expiry date, I will get assigned 400 shares

But as I already have collected a premium of $0.26 per share, my break-even price for this trade then will be $9-$0.26 = $8.74

In case of assignment, will turn this trade into a wheel strategy and will start selling covered calls.