Trade alert: Rolled Forward and Down 1 put option on PFE – 2.34% potential income return in 77 days

On September 17, 2021, I rolled forward a put option on PFE stock with an expiry set in the next 63 days (November 19, 2021). For this trade, I got a premium of $105.4 (after commissions)

Originally this trade was entered on September 3 as a put bull credit spread with strike prices of $46 and $44.

As on the expiry date, both of the put options were in the money, I decided to avoid the assignment and rolled forward and down the short put option while sold the long put option.

Here is the trade setup:

• BOT 1 PFE SEP 17 '21 46 Put Option 2.04 USD

• SLD 1 PFE NOV 19 '21 45 Put Option 2.55 USD

• SLD 1 PFE SEP 17 '21 44 Put Option 0.29 USD

Here I bought back SEP 17 46 put option paying $204 and sold a new put option with a strike price of 45 and expiry date on November 19, for which I got $255. Also, I sold the long 44 put option for which I received an additional $29.

I did two things here - lowered the strike price from 46 to 45 and received a nice premium for that.

As I received a $30 premium when originally opened this trade at the start of September, my total premium received so far: $105.4 (after commissions)

What happens next?

On the expiry date, November 19, 2021, PFE is trading above $45 per share -  options expire worthlessly and I keep premium - if PFE trades under $45 on the expiry date, I will get assigned 100 shares and will have to buy them for $4,500 or I will try and roll them again,

As I already have collected a premium of $1.05 per share, my break-even price for this trade is $45-$1.05 = $43.95

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