Results Week Ending 11/11/22
The week started off a little weak but in the middle of the week the government announced the CPI number. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for goods and services. The CPI was slightly better than expected and the market took off. Any little hope for the economy with a little relief from inflation in big news for the market. I wish I could be more optimistic with the CPI report but I don’t think the report was good enough to curtail the Fed from future rate hikes. Time will tell.
I am still not trading much for a few reasons: I do not trust the market and, as I said before, my account is much smaller than it was. It’s smaller because of funds removed for other investments and funds lost in the last year. Grasshoppers should watch a little closer because my trades will be true Grasshopper trades.
As last week, I only made 1 trade this week. On Tuesday I bought 100 shares of Nvidia (NVDA) at $146 and sold a 1 contract $149 Call to expire on Friday. Tuesday, Election Day, the market started off well and Nvidia went up about $5 from where I bought but by the end of the day the stock was below where I bought.
My strategy for this trade was to get assigned, which is my normal strategy. I brought in a $3.50 premium for a total of $350 and if assigned I would make an additional $300 on the stock sale. Long time readers, you know I like to get assigned. The newer readers might not know this strategy. I’ll explain it at the end of this post.
The result of this trade is I was assigned. When the market took off as a result of the CPI report Nvidia never looked back and closed on Friday at $163.27. Take a look at the trade then I’ll talk about my strategy.
11/8/22 – Buy 100 Shares NVDA at $146.00
11/11/22 – Assigned 100 Shares NVDA @ $149.00
Profit +$300
11/8/22 – Sell to Open 1 NVDA 11/11/22 $149.00 C @ $3.50 (+$350)
11/11/22 – Expired 1 NVDA 11/11/22 $149 C
Profit +$350
Total Weekly Gain +$650
I believe you should have your strategy in place before you enter your trade. My strategy was to get assigned so my Strike Price and Expiration Date is picked accordingly. This trade was with the Strike Price of $149. With the way Nvidia has been moving I felt going up only $3 on the Strike was a good number to get assigned at. And I would be happy making $3 on the stock sale with an assignment. I went with the Friday, 11/11/22 Expiration Date because when selling options I like short term deals so Time Decay is on my side. With the market moving I was assigned and this deal is over! I made $3 on the stock sale for $300 plus the $350 premium for a total of $650.
If I wasn’t assigned my premium was a gain of 2.3%. However, I was assigned so my total gain for the 4 day trade was 4.4%. Most traders would not like this trade because I had a substantial Opportunity Lost. The Opportunity Lost is the money I didn’t make on the stock gain because I sold an option. The stock closed at $163.27. I agreed to sell my stock at $149 with my option contract in exchange for the $350 premium. I do not let this bother me. I take what I signed up for and move on. If you cannot handle an Opportunity Lost once in a while my answer is DO NOT trade options. Your strategy should be buy and hold. Which, by the way, is the strategy of millions of investors.
For the new readers the question still stands, why do I like to get assigned? I’ve seen too many times, especially in the last year, where I buy a stock and sell a Call Option only to see the stock tank down $10 or $15 and I couldn’t jump out because I had an option sold against the shares. Many times you end up holding the stock for the next year waiting for it to recover. I would rather get assigned, make the money I signed up for with the premium and the stock sale, and move on, next deal.
If I get assigned I feel it was a successful trade. I take the profit I signed up for and look for the next deal. If I don’t get assigned the stock is below my Strike Price and many times below my buy-in price. If I don’t get assigned I always like the stock to close between my buy-in price and my Strike Price. If this is the case I get ready to sell another Call Option the next trading day. In this week’s trade, if I was not assigned I would have liked the stock to close between $146 (my buy-in price) and $149 (my Strike Price). It turns out the stock closed at $163.27. This is $14.27 above my Strike Price. It is a substantial Opportunity Lost but I’m happy to move on to the next trade with a nice profit of $650. However, if I didn’t sell the Call I would have profited $1427 instead of $650. I think in the long run I will be way ahead being an options trader.
If you have any questions on this trade or my strategy please send me an email.
Successful trading,
Steve
The Options Coach