Out of My Square Short Position

On 5/18/20 I sold a 5 contract Naked Call on Square (SQ) with an $80 Strike Price. The Call expires on Friday 5/22. I received a premium of $1.50. On the 5 contracts The premium was $750.

I did a Naked Call because the stock received a few downgrades and I felt the stock was gonna go down. Well, the stock didn’t go down, in fact it went up above my Strike Price and I didn’t cover my Call. I felt that strongly that the stock was going down.

You must understand how Naked Calls work when they expire In-the-Money, which is what happened to me. The result is my broker delivered the 500 shares of the stock at my Strike Price of $80 to the option buyer. When your broker does this your account will be Short the 500 shares at $80. I was a little worried because the stock went above $82.

Today I lucked out! In an up market SQ is down. And it’s down a few bucks!

Since I’m short I have to buy the stock and give the 500 shares back to my broker at $80. A few minutes ago I bought the 500 shares at $78.75 and my broker paid me the $80. I made $1.25 per shares for a total of $625.

5/22/20 – Short 500 Shares SQ @ $80.00

5/27/20 – Buy 500 Shares SQ @ $78.25

Profit +$625

The Call I sold on 5/18 expired with me keeping the $750 premium and now I add the $625. The result of selling the SQ Naked Call in a gain of $1375.

Many Grasshoppers don’t understand how Short Positions work. It’s very important that you do. Please read up on the subject. If you have any question send me an email. This is a MUST!

Successful Trading,

Steve

The Options Coach