Grasshopper Report 4/23/21
This is the Grasshopper trades weekly results for week ending 4/23/21.
I would like to thank the Grasshoppers who have sent nice comments about “The Grasshopper Field.” This section has been going since the beginning of the year and is doing pretty well. Take a look at Grasshopper Trade Results 2021 to see all the trades and results.
In my trading account I have plenty of stock positions that are below my buy-in price. This presents a problem with bringing in premiums I’m accustomed to. I am well aware that some of you are in the same boat. And believe me, so are most options traders. I also have a few positions in “The Grasshopper Field” that are below my buy-in price. I continue selling Calls, at least trying to. If they are well below my buy-in price I go out a little further with the Expiration Date to get a decent premium.
While all 3 major indexes are near all time highs there are plenty of stocks that are well below their highs. I also know, as new traders, this is very discouraging. As new traders there are a number of ways of dealing with this problem.
First of all new traders should not be trading on margin. Managing a margin account is something that needs experience.
Do not get fully invested. Being fully invested is a sign of greed and it’s not being disciplined. We must make a plan and stick to it, PERIOD! If you don’t you will get into trouble. As new traders you must concentrate on your return and not the amount of money you are bringing in. This is the time for learning not making big money.
You want to deal with stocks that give you between 1 and 3 percent of your investment as a premium. Any money you make on a stock sale with an assignment is extra. Stay away from stocks that have huge premiums. Huge premiums come with volatile stocks. You have a 50% chance of the stock going up and the same chance of the stock falling off the table. To me this is gambling and you will lose. Stocks that have the 1 to 3 percent premiums can also drop but there’s less of a chance. I’m in a few that dropped but I believe they are good stocks and I believe they will bounce back. Hopefully sooner than later.
These are a few things I want you to remember everyday when trading. If you already got into trouble, or you get into trouble in the future, it’s not time to quit; it’s all part of learning. I’m sorry but the best way to learn is to take a good gut punch. Believe me, I took plenty!
Let’s take a look at this week’s Grasshopper Trades. Both are with U.S. Steel.
U.S. Steel
This was a Covered Call without assignment.
4/14/21 – Sell to Open 1 X 4/23/21 $24.50 C @ 50¢ (+$50)
4/23/21 – Expired 1 X 4/23/21 $24.50 C
Profit +$50
U.S. Steel
Let me write a little about this trade. It’s not the normal Grasshopper situation.
I own 100 shares of X at $24.25 which is the position listed above. I also owned 100 shares at $23.30 which is this position below.
With the $24.25 shares above and the $23.30 shares below I sold Calls expiring 4/23, which expired. With the $24.25 shares I sold a $24.50 Call and the $23.30 shares I sold a $23.50 Call. On Friday the 23rd it looked like both of these Calls would expire without assignment. What I did, which is not a Grasshopper move, I sold another Call, before the close, on each to expire next Friday the 30th. I did this because I believed there would not be an assignment and I would get a jump on next week’s trades. To my surprise, late in the day on Friday the 23rd U.S. Steel moved up. It moved up above $23.50. It turns out the $24.40 Call was safe from assignment but I was assigned on the $23.50 Calls. This is the trade below.
The problem is I no longer own the shares to cover the $23.50 Call I sold expiring next Friday. This Call is now Naked. This is a problem! It’s not a huge problem for me because of the size of my account and it’s only 100 shares. However, if this was a 10 contract Call it could present a huge problem. This position is listed in “The Grasshopper Field” on the Grasshopper Trades page under Naked Calls.
Now what happens?
This is now a Naked Call. If the stock continues up on Monday, and stays up above my Strike Price of $23.50 until Friday, I will lose money.
What would I like to see happen? I want U.S. Steel to continue up because I have the other Covered Call going and I would like to get assigned. I would like to see the stock go up on Monday, but before it does I would like to see a temporary dip below $23.50 so I can buy 100 shares to cover this Call. Let’s watch and see what happens on Monday.
I’m very happy this happened because I think it can be a good learning experience for you. I don’t want to lose money but if you can learn a good lesson with me losing a small amount of money I’m happy.
Understanding what I did is very important. Please, if you don’t understand send me an email.
U.S. Steel assigned Covered Call
4/14/21 – Buy 100 Shares X @ $23.30
4/23/21 – Assigned 100 Shares X @ $23.50
Profit +$20
4/19/21 – Sell to Open 1 X 4/23/21 $23.50 C @ 80¢ (+$80)
4/23/21 – Expired 1 X 4/23/21 $23.50 C
Profit +$80
Total Weekly Gain +$150
Enjoy the rest of the weekend!
Successful trading,
Steve
The Options Coach