Discover more from Covered Calls with Reinis Fischer
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
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.