Grasshopper Trade at the Close

On 1/25/21 I bought 100 shares of U S Steel and sold a 1 contract Covered Call. I sold 1 Call bringing in a premium of $1.15 for $115.

After I sold that Call the stock pulled back a few dollars and I didn’t get assigned. The Call expired last Friday, 1/29. This past week I didn’t get a Call sold against these shares because with the stock down I couldn’t get a good premium.

Today I decided to buy another 100 shares at $16.90 leaving me with 200 shares at an average price of $17.90.

Today, with a few minutes left in the trading day I sold a 2 contract Call. To get a premium I liked I had to go out to the Expiration Date of 2/19 and use the Strike Price of $17.50. I sold 2 2/19/21 $17.50 Calls at 60¢ for $120.

Sell to Open 2 X 2/19/21 $17.50 C @ 60¢ (+$120)

As Grasshoppers, as you were reading this report did you notice what makes this trade different to most other Covered Call trades I make?

What makes this different is this is an In-the-Money Covered Call. I own the stock at $17.90 and I sold the $17.50 Call. If I get assigned I’ll lose money on the sale of the stock. If assigned at $17.50 I’ll lose 40¢ on the 200 shares for a loss of $80.

I did this for a few reasons. One of the reasons is I wanted to use this as a learning tool for you. I don’t know if any of you were in the original trade, but I want to go over the option you have when you’re not assigned and the stock drops lower. I’m reporting this after the close because I wanted anyone in the original trade to think about what I did and you can do what you want tomorrow.

Another reason I made this In-the-Money trade is for the bigger premium. I might get assigned and lose money on the stock sale but the bigger premium makes up for the loss. Plus I brought in a $1.15 premium 2 weeks ago. Even if I get assigned and lose money on the stock sale I will still be up. I’ll lose $80 on the deal but I brought in a total of $235. I will be +$155.

If you don’t like this you can buy another 100 shares to lower your average cost and sell the $18 Call. If assigned you will not lose money on the stock but you’ll take in less premiums.

These are the decisions you have to make when the trade doesn’t go the way you want. If I’m not assigned and the stock drops, it’s not going the way I want.

If you have any questions on this send me an email.

Successful trading,

Steve

The Options Coach