Rolled Forward and Down Put Option on XOM – 1.37% potential income return in 63 days
On August 19, 2021, I rolled forward and rolled down a put option I established just a week ago on XOM stock
As the stock price of XOM failed through the roof and was well under my strike price, I decided not to take an assignment, but instead roll this trade forward, while lowering my strike price.
Here is the trade setup:
BOT 1 XOM AUG 20 '21 56.5 Put Option 3.12 USD
SLD 1 XOM OCT 15 '21 55 Put Option 3.38 USD
Here I bought back 1 put option with the strike prices of $56.5, for which I paid $312, and sold 1 new put option with a lower strike price and with an expiry set in October. For this trade, I got $338 (before commissions)
I did 2 things - lowered the strike prices from $56.5 to $55; rolled for a credit
What happens next?
On the expiry date, October 15, 2021, XOM is trading above $55 per share - options expire worthlessly and I keep premium - if XOM trades under $55 on the expiry date, I will get assigned 100 shares
But as I already have collected a premium of $0.75 per share, my break-even price for this trade then will be $55-$0.75 = $54.25
In case of assignment, I will turn this trade into a wheel strategy and will start selling covered calls.