On October 01, 2021, I sold 1 bull put credit spread on EEM ETF with an expiry set in the next 7 days. For this trade, I got a premium of $28.20 (after commissions)
The iShares MSCI Emerging Markets ETF seeks to track the investment results of an index composed of large- and mid-capitalization emerging market equities.
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Here is the trade setup:
SLD 1 EEM OCT 08 '21 50 Put Option 0.45 USD
BOT 1 EEM OCT 08 '21 48 Put Option 0.12 USD
For this credit spread, I got a credit of 28.2 USD (after commissions) or a 0.56% potential income return in 7 days, if options expire worthlessly
What happens next?
On the expiry date, October 08, 2021, EEM is trading above $50 per share - options expire worthlessly and I keep premium - if EEM trades under $50 on the expiry date, I will get assigned 100 shares and will have to buy them for $5,000
But as I already have collected a premium of $0.28 per share, my break-even price for this trade then will be $50-$0.28 = $49.72
In case of assignment, I will turn this trade into a wheel strategy and will start selling covered calls