Grasshopper Lesson – Deep In-the-Money Covered Calls
When I’m not crazy about the way a stock is moving, even if it’s moving up, and it has large premiums, I might do a Deep In-the-Money Covered Call. I just did a Deep In-the-Money Covered Call with Workhorse (WKHS). I consider a Deep In-the-Money Covered Call a Call sold at least $1 In-the-Money.
I just bought 200 Shares of WKHS at $14.50 to do a Grasshopper Deep In-the-Money Covered Call.
I bought the shares at $14.50 and sold a 2 contract Covered Call. I sold 2 of the WKHS 6/11/21 $13.50 Calls for a premium of $1.75.
Deep In-the-Money Covered Call
Buy 200 Shares WKHS @ $14.50
Sell to Open 2 WKHS 6/11/21 $13.50 C @ $1.75 (+$350)
Workhorse has been very volatile and I really don’t like the way it’s moving. It’s moving up, and I now own 1200, but after being down it’s moving up too fast for me, some days! It can move up $2 or down $2 any day. Today as I write it’s up $1.50. I like the stock, but I like the sector better. I don’t think it’s one of the top stocks in the EV sector but it is an EV stock. Many times all stocks in a sector move together. With all this in mind I did a Deep In-the-Money Covered Call.
I made this trade because I want to get assigned. This deep In-the-Money gives me a better chance of getting assigned. But, because of the volatility it’s not guaranteed.
If I get assigned I keep the $1.75 premium for $350 but I’ll lose $1 on the stock for $200. I will have a gain of $150. On assignment my Return on Investment (ROI) is 5.17%. This is fantastic!
If I don’t get assigned I keep the $1.75 premium and I keep the stock. Now my Return on Investment is 12%. This is even better. BUT, I still own the stock which is lower than $13.50 since I didn’t get assigned. The 12% return is great but if the stock drops to $10 it’s not so great.
The EV stocks have been moving well, as is WKHS, so I give this trade a Risk Factor 3. Only because of the volatility. I still think it’s a good trade for a Grasshopper.
Always keep the strategy of Deep In-the-Money Covered Calls in your arsenal. Lets watch this trade until Friday to see how it does.
I also made Master Trades with Nio and AMAT. I previously owned the stock with both, NIO at $41.40 and AMAT at $142.40. The trades are listed on the Active Trades page
Sell to Open 10 NIO 6/11/21 $43.50 C @ $1.10 (+$1100)
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Sell to Open 10 AMAT 6/11/21 $143.00 C @ 60¢ (+$600)
Let me know if you have any questions on Deep In-the-Money Covered Calls.
Successful trading,
Steve
The Options Coach