On November 30, 2021, I sold 1 bull put ratio back spread option on EWZ ETF with an expiry set in the next 23 days on December 23, 2021. For this trade, I got a premium of $9.8 (after commissions)
The Put Ratio Back Spread is a 3 leg option strategy as it involves buying two OTM Put options and selling one ITM Put option. This is the classic 2:1 combo.
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 EWZ DEC 23 '21 28 Put Option 1.89 USD
BOT 2 EWZ DEC 23 '21 26 Put Option 0.86 USD
For this trade, I got a premium of 9.8 USD (after commissions) or a 0.35% potential income return in 23 days, if options expire worthlessly
What happens next?
On the expiry date, December 23, 2021, EWZ is trading above $28 per share - options expire worthlessly and I keep premium - if EWZ trades under $28 on the expiry date, I risk getting assigned 100 shares and buying them for $2,800
In case EWZ will drop below our second bought strike prices at $26, we will earn additional income
As I already have collected a premium of $0.09 per share, my break-even price for this trade then is $28-$0.09 = $27.91
In case of an assignment, I will turn this trade into a wheel, but prior to the assignment I will try to roll out this trade