On December 03, 2021, I sold 1 bull put ratio back spread option on WBA stock with an expiry set in the next 42 days on January 15, 2022. For this trade, I paid a debit of $118.2 (after commissions)
As I'm actually holding 81 shares with WBA inc stock - I decided to establish this ratio back spread as protection from further drop and also to free up some margin.
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 WBA JAN 14 '22 44 Put Option 1.89 USD
BOT 2 WBA JAN 14 '22 43 Put Option 1.50 USD
For this trade, I paid a debit of 118.2 USD (after commissions) or a 2.68% premium, if options expire worthlessly
What happens next?
On the expiry date, January 14, 2022, WBA is trading above $44 per share - options expire worthlessly and I lose the premium I paid - if WBA trades under $44 on the expiry date, I risk getting assigned 100 shares and buying them for $4,400
In case WBA will drop below our second bought strike prices at $43, we will earn additional income. The more it will drop, the more we will earn.
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