On November 30st, 2020, we sold 5 covered put’s on NYSE:ACB stock with an expiry set in the next 5 days. For this trade, we get a premium of $600 (5 x $120) (before commissions).
This trade comes as the #1 in the month of December, according to our trading plan for this month, the premium generated from this trade makes us about 30% of our $2000 monthly goal, while in total we have already reached 0% so far.
ACB is one of our favorite stocks to trade credit spreads / covered puts on, since April 2020, this stock has made us the most options income so far.
Here is our trade setup:
- STO 5 ACB DEC 04’20 – 11Put -1.20 USD
- Using $1100 per contract totaling, $5500
For this trade, we got a premium of 120 USD (after commissions) or a 10.9% potential income return in 4 days.
What happens next?
On expiry date December 4, 2020 ACB is trading at or below $11 per share – our collateral will be used and we will be forced to buy 500 shares. If ACB trades above $11 on the expiry date, we keep premium, and get our collateral back ($5500).
But as we already have collected a premium of $1.20 per share, our break-even price for this trade then is $11(our cost average)- 1.20= $9.80
Because ACB is trading such on an uptrend we are essentially just using this trade with hopes that ACB does close above our $11 strike. This is the first step to our strategy called “The Wheel”, we are just trying to reenter ACB at a discount and receive a premium for it. If ACB does fall below $11, we will just sell covered calls against our shares next week, making us even more money and lower our cost average!
