Trade Adjustment: Rolled Forward and Down 2 NKLA Credit Spreads -1.26% potential income loss in 153 days
On November 29, 2021, I rolled forward and down 2 credit spreads on the NKLA stock, I originally established back at the start of November 2021.
As the expiry date approached (December 03, 2021) and NKLA stock was in the money, and not wanting yet to turn this trade into a covered call or to close with a loss, I decided to roll it out and avoid the assignment this Friday.
Here is the trade setup:
BOT 2 NKLA DEC 03 '21 12 Put Option 2.01 USD
SLD 2 NKLA DEC 03 '21 10 Put Option 0.37 USD
SLD 2 NKLA APR 14 '22 9 Put Option 1.97 USD
BOT 2 NKLA APR 14 '22 6 Put Option 0.70 USD
Here I bought back the $12/$10 credit spread put and sold a new credit spread with lower strike prices ($9/$6 and with an expiry set in April 2022.
What happens next?
On the expiry date, April 14, 2022, NKLA is trading above $9 per share - options expire worthlessly and I keep premium - if NKLA trades under $9 on the expiry date, I will get assigned 200 shares
New break-even price $9+0.12 = $9.12
In case of an assignment, I will turn this trade into a wheel strategy and will start selling covered calls on NKLA