Trade Alert: Partial Roll Forward and Down 2 Credit Spreads on SDC –3.6% potential income loss in 105 days

Bad trades sometimes happen, and my trade with SDC credit spreads is one such example.

On October 05, 2021, for the second time, I rolled forward and down a credit spread, I originally established back at the end of July on SDC stock. Back then I was selling 5 credit spreads with an upper strike price of $6.5.

Soon I rolled this spread to this Friday’s expiry with a lower strike price of $6, but again I'm a bit troubled. Not willing yet to take an assignment I decided to roll out and lower my strike prices again.

I rolled 2 out of the 3 contracts and will take assignments on the remaining this Friday. On whom I'm going to sell a covered call.

Here is the trade setup:

  • BOT 2 SDC OCT 08 '21 6 Put Option 0.52 USD

  • SLD 2 SDC NOV 05 '21 5.5 Put Option 0.67 USD

  • BOT 2 SDC NOV 05 '21 4.5 Put Option 0.22 USD

Here I bought back 2 contracts with the strike prices of $6, for them, paid in total $104, and sold 2 additional credit spreads with lower strike prices and with an expiry set in next month. For this trade, I got $90 (before commissions)

I lowered the strike prices from $6 to $5.5

What happens next?

On the expiry date, November 05, 2021, SDC is trading above $5.5 per share -  options expire worthlessly and I keep premium - if SDC trades under $5.5 on the expiry date, I will get assigned 200 shares

As this trade was established back in July, I actually will lose -$39.8 if options will expire worthlessly. New break-even price $5+$0.2 = $5.7

Anyhow this still looks more acceptable scenario, than to take an assignment now with the strike price of $6

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