Discover more from Covered Calls with Reinis Fischer
Sold 1 Bull Put Credit Spread on British American Tobacco Stock – 1.28% potential income return in 28 days (16.67% annualized)
On July 21, 2023, I sold 1 bull put spread on British Tobacco stock (NYSE:BTI) with strike prices at $34 and $32 with expiry on August 18, 2023. For this trade setup, I was rewarded with $43.7 (after commissions).
British American Tobacco plc is a British multinational company that manufactures and sells cigarettes, tobacco and other nicotine products. The company, established in 1902, is headquartered in London, England
From the premium received, I bought 1 share of BTI stock. 98 to go, before I will be able to establish covered call options for this position. BTI is a dividend-paying stock, with a yield above 7%. One additional share will boost my dividend stock portfolio by $2.38. Awesome.
When setting up this trade I was looking for more aggressive, near money, strike prices, as I’m actually ready for the stock assignment at $34.
This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset.
here is the trade setup:
SLD 1 BTI AUG 18 '23 34 Put Option 0.58 USD
BOT 1 BTI AUG 21 '23 32 Put Option 0.13 USD
What happens next?
On the expiry date, August 18, 2023, BTI is trading above $34 per share - options expire worthlessly and I keep premium - if BTI trades under $34 on the expiry date, I risk getting assigned 100 shares, and will have to buy them paying $3,400
In case the stock falls under $32, I have protection.
As I already have collected a premium of $0.43 per share, my break-even price for this trade is $34-$0.43 = $33.57
In case of an assignment, I will turn this trade into a wheel strategy and will start selling covered calls.
Anyhow, if troubled with the strike price near the expiry, I will try to roll it forward and down, preferably for credit, before actually taking the stock assignment.
In total: 6 trades since June 15, 2023
Options premium: $84