Partial Roll Forward and Down 4 Credit Spreads on RIDE – 6.75% potential income return in 74 days
On August 18, 2021, I did a partial roll forward and roll down on a credit spreads I established at the start of August on RIDE stock.
While holding 6 credit spreads on RIDE stock with expiry on the next Friday, and while the stock has been failing and touching my strike prices, I decided to spread the risk and not take a full assignment of 6 contracts or 600 shares, next Friday, but instead take just 3 contracts and roll forward the rest.
Here is the trade setup:
SLD 3 RIDE AUG 27 '21 - 6 + 4 Put Bull Spread -0.85 USD
BOT 4 RIDE OCT 15 '21 - 5 + 2.5 Put Bull Spread -0.72 USD
Here I bought back 3 contracts with the strike prices of $6 and $4, for which I paid $255, and sold 4 additional credit spreads with lower strike prices and with an expiry set in October. For this trade, I got $288 (before commissions)
I did 2 things - lowered the strike prices from $6 to $5; increased the contract size, to somehow break even the cost
What happens next?
On the expiry date, October 15, 2021, RIDE is trading above $5 per share - options expire worthlessly and I keep premium - if RIDE trades under $5 on the expiry date, I will get assigned 400 shares
But as I already have collected a premium of $0.33 per share, my break-even price for this trade then will be $5-$0.33 = $4.67
In case of assignment, will turn this trade into a wheel strategy and will start selling covered calls.