In-the-Money Peloton Covered Call
I don’t know if I did an In-the-Money Covered Call since the inception of Main Street beats Wall Street. However, it’s not the first one I ever did. Clearly I don’t do a lot of these, but this one I love!
An In-the-Money Covered Call means I bought the stock and I sold a Call with a Strike Price lower than the stock price. Let me explain using the trade I just made as an example.
I bought 1000 shares of Peloton (PTON) at $43.40. Then I sold 10 Calls with the Strike Price of $43. At first you’ll think, why did he do that? If he gets assigned he’ll lose 40¢ or $400 on the stock sale. And you would be correct! But we didn’t go over the Call Option I sold and the premium I received. Before we do that let me show you the trade:
Buy 1000 Shares PTON @ $43.40
Sell to Open 10 PTON 5/29/20 $43.00 C @ $1.65 (+$1650)
Notice how high the premium is, $1.65. A premium of $1.65 on a $43.40 stock is a return of 3.8%. In one week, that’s great!
With this In-the-Money Covered Call I bought the stock at $43.40 and I’m willing to sell it at $43 and lose 40¢. The reason I did this is the $43 premium was higher than the $44 or $44.50 premiums. I’m willing to take a lose on the stock for the higher premium.
If I get assigned I’ll lose $400 on the stock sale, but because of the high premium I locked in $1650. If there’s an assignment I will profit $1250. This is what I would like to happen. If it does, my rate of return, with the premium and the lose on the stock sale, will still be 2.88%. I love this trade! The trade gets a Risk Factor 1.
If I’m not assigned, I’ll keep the 1.65 premium and keep the stock, and my Rate of Return will be the 3.8%. But I’ll still own the stock at a lower price. This is why I want an assignment.
When I went into this trade I started with 2000 shares. the buying of the 2000 shares took too much of my margin so I decided to sell 1000 of the shares 5 minutes later. I got $43.60. In that 5 minutes I made $200 on that 1000 shares lol.
Buy 1000 Shares PTON @ $43.40
Sold 1000 Shares PTON @ $43.60
Profit +$200
I also bought a 10 contract LEAPS on Marvell (MRVL). I sold a MRVL LEAPS last week with a nice profit. I decided to get back in.
Buy to Open 10 MRVL 1/21/22 $32.00 C @ $6.50 (Delta .57)
Marvell’s earnings come out this Thursday. I hope they beat the Street estimates. If not I have a long time to recover.
Successful Trading,
Steve
The Options Coach