On November 20, 2020, we sold 1 bearish call credit spreads on NIO stock with an expiry set in the next 7 days. For this trade, we got a $12 premium (before commissions)
NIO Inc. American depositary shares, each representing one Class A ordinary share, also called NIO, is a holding company, which engages in the design, manufacture, and sale of electric vehicles, driving innovations in next generation technologies in connectivity, autonomous driving and artificial intelligence.
This trade come as the #19 in the month of November, according to our trading plan for this month, the premium generated from this trade makes us about 1.2% from our $10000 monthly goal, while in total we have already reached 128.14% so far. Incredible!
Here is our trade setup:
- BOT 1 NIO NOV27 ’20 – 61-62 Call Bear Spread -0.12 USD
For this trade, we got a premium of 12 USD (after commissions) or 12% potential income return in 5 days (if options expire worthless).
What happens next?
On the expiry date (November 27, 2020) NIO is trading above $62 per share – options would be in the money , realizing our max loss from this trade. Max loss is: Distance between strikes – credit received. $1.00-.13 = $87 LOSS. If NIO trades under $61 on the expiry date, we would realize our max profit for this trade because our options would expire worthless, keeping our credit and getting our collateral back.
As we are selling credit spreads, our max risk is defined, in case the stock rockets to over $61, our second bought call will work as insurance and will minimize our potential losses.
