On April 27, 2020, I sold a bull put credit spread on SDC stock with expiry in 32 days.

SDC is a new stock in my arsenal, first read in on Investing with Covered Call Options blog 

SDC or SmileDirectClub is a teledentistry company. The company was co-founded in 2014 by Jordan Katzman and Alex Fenkell. It is based in Nashville, Tennessee

SmileDirectClub produces 3D-printed clear aligners. SmileDirectClub aligners are a competitor of traditional braces and clear alignment companies like Invisalign. 

Communication with licensed orthodontic professionals and other SmileDirectClub staff takes place virtually. Impression kits are sent to customers, after which teeth molds are reviewed by dentists or orthodontists who oversee the treatment process. The company reportedly works with 225 licensed professionals.

While most business and dentistry is conducted online, the company has 300 retail locations across the United States, Canada, Australia and the United Kingdom.

Here is my trade setup:

  • BOT 1 SDC MAY 29 '20 - 5 + 3.5 Put Bull Spread -0.48 USD 

For this trade, I got a premium of 48 USD (before commissions) or a 9.6% potential income return in 32 days.

So what happens next?

On expiry day (May 29, 2020) SDC is trading above $5 per share - my options expire and I keep premium - if SDC trades under $5 on expiry date I  get assigned.

But as I already have collected premium of 0.48 per share, my break-even price for this trade then is 5-0.48 = $4.52

In other words, SDC can fall from the current price of $5.5 way down to $4.52 and I will still be break even (that is the downside protection of more than 21%)

Date Type Count Dividend Purchase Price Sale Price Stock Price Strike price Date ox Expiration Option Price Incoming Outgoing Profit
4/27/2020 STO PUT 1 x     5.5 5 05/29/2020 $0.68 $0.68 $0.00  
4/27/2020 BTO PUT 1 x     5.5 3.5 05/29/2020 -0.2 -$0.20 $0.00

I could just sell naked put and not vertical spread with just one strike, and collect larger premium of 0.68 or 13.6%, but as I'm trading on margin, I wanted to limit the capital locked for this spread, and additional 3.5 strike helped to save about $100 in margin capital

If assigned in the price range $4.5-$5 - I will sell covered calls; if expires worthless, will repeat and double up; if SDC falls below $4.5 till expiry will roll forward

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