Bought 100 Shares of X for a Grasshopper Lesson

Last week I owned 200 shares of U.S. Steel (X). I also had (2) 1 contract Covered Calls expiring on Friday. I had a 1 contract $23.50 Covered Call and a $24.50 Covered Call.

Late in the day on Friday X was in the $23.25 area. I felt I would not get assigned on either of the Calls.

With about an hour left to the trading week I decided to sell another Call to expire this coming Friday, 4/30, to get a jump on this week’s income. I like to do this once in a while because you get a better premium with an 8 day Call than with a 5 day Call if I waited until Monday to cell the next Call. I only do this when I’m very confident I will not get assigned on the Call that’s in play.

When you do this you have 2 calls sold against the 100 shares. For a short time you will have 1 Covered Call and 1 Naked Call. Once the market closes for the week on the first Call, that Call expires and the stock will cover the new Call you sold for the following week.

So, on Friday 4/23, with about 1 hour remaining to the trading week, the stock was at $23.25. Again, I had $23.50 and $24.50 Covered Calls. I knew the $24.50 Call was safe from assignment, and I also felt the $23.50 Call was safe. I did not think the stock would move above the $23.50 Strike Price. As fate would have it, in the final hour X went up above $23.50 and I was assigned on the 100 shares. My $24.50 Call expired and the shares I owned covered the new Call I sold, but the new $23.50 Call I sold to expire 4/30 was left Naked because I was assigned on the 100 shares.

I know this is a long winded story but I think it’s important for a Grasshopper to understand.

This week X continued up as high as $24.96. Yesterday and today the stock dropped and I just bought 100 shares at $23.15. My $23.50 Call that expires this Friday is now Covered.

 

Buy 100 Shares X @ $23.15

If you look at The Grasshopper Trades page you will now see this position listed as a Covered Call. It is no longer listed as a Naked Call which makes me happy because “The Grasshopper Field” is no place for a Naked Call.

 

Successful trading,

Steve

The Options Coach