Sold a 10 Contract Call With LX

I like the FinTech stock, Lexinfintech (LX). The stock has been moving up for the last few weeks. I think the stock is ready for a little break. I get this feeling from looking at the technical indicators. The stock is now above the upper band of the Bollinger Bands. The Relative Strength Index (RSI) is well above 80 and approaching 90. A stock is in overbought territory when it’s above 70. So, why did I sell a Call on this stock?

Yes I sold a Call but I sold a Naked Call. I don’t think the stock will collapse but I do think it will come down a little. Because of this feeling I sold a Naked Call, but plan on covering this Call soon. This stock only has monthly options. With the stock at $13 I sold the LX 3/19/21 $15 Call for a premium of $1.35 for $1350.

Sell to Open 10 LX 3/19/21 $15.00 C @ $1.35 (+$1350)

I’ll be watching this position very closely. If the stock continues up I have a little room before I have to buy the stock to cover this Call. If the stock goes down, which I think it will, I’ll buy the stock when I feel it hits support. I do plan on buying the stock before the Expiration Date of 3/19.

This is a Naked Call on a very hot stock so this trade gets a Risk Factor 4. It doesn’t get a 5 because it’s $2 Out-of-the-Money. I have plenty of time to buy.

The premium I received is $1.35. If I bought the stock at $13 it would be a return of 10%. I’ll let you know what my Return on Investment (ROI) is as soon as I buy the stock. Right now I brought in $1350 with no investment.

Successful Trading,

Steve

The Options Coach