Trade Alert: Partial Roll Forward and Down 2 Credit Spreads on ACB +6.15% potential income return in 56 days

On September 8, 2021, I did a partial roll forward and roll down on a credit spread I established at the end of July on ACB stock

As the expiry date was fast approaching and just shortly before it the strike prices slipped under it. Not willing to take too much unwanted risk I decided to roll forward and roll down at least some part of the contracts.

I rolled 2 out of 5 contracts and I am ready to take assignments on the rest 3 this Friday. But most probably if the strike price is going to be in the money I will try to roll out another 2 contracts.

Here is the trade setup:

  • BOT 2 ACB SEP 10 '21 7 Put Option 0.20 USD

  • BOT 2 ACB SEP 24 '21 - 6.5 + 5.5 Put Bull Spread -0.24 USD

Here I bought back 2 contracts with the strike prices of $7, for them I paid in total $40 and sold 2 additional credit spreads with lower strike prices and with an expiry set later in September. For this trade, I got $48(before commissions)

I lowered the strike prices from $7 to $6.5.

What happens next?

On the expiry date, September 24, 2021, ACB is trading above $6.5 per share -  options expire worthlessly and I keep premium - if ACB trades under $6.5 on the expiry date, I will get assigned 200 shares

New break-even price $6.5-$0.4 = $6.1

In case of an assignment, I will turn this trade into a wheel strategy and will start selling covered calls.