If you are following my blog you saw me buy 1000 Shares of Netflix (NFLX) earlier this week. I purchased the shares for $97.95. On Tuesday I sold a Call against these shares and received a premium of $1 for a total premium of $1000. A few hours later, with NFLX pulling back and the premium going down, I bought my way out of that option for $.50. The selling of a Call is a Short Position. You must understand how Short Positions work. You sell before you buy. In this deal I sold for $1 and bought for $.50. This gave me a $.50 profit. On 1000 shares (10 Contracts) it gave me a $500 profit. Please read my section named “Long & Short Positions.”
Since I bought my way out of that option I now own the 1000 shares with no option. This morning I sold another Call Option against my shares. A few minutes ago, with NFLX at $99.25, I sold another 10 contracts of the $100 Call expiring tomorrow. I received another $1 premium for $1000. Here’s the sell order:
Sell to Open 10 NFLX 3/11/16 $100 C @ $1 (+$1000)
I gave this trade a Risk Factor of 1 for two reasons. #1 is because it’s a Covered Call which is a pretty safe trade. #2, I don’t care if NFLX goes above my Strike Price of not. I just don’t want NFLX to go down big. If the stock stays in the area it’s in now, I keep my stock and keep the premium of $1000. If the stock goes above my Strike Price I lose my stock at $100 a share and keep the $1000 premium. I’ll make $2.05 on the stock sale ($2050) plus the $1000 premium. If the stock goes up big by tomorrow I’ll make the same $3050 but I’ll have an Opportunity Lose which does not bother me at all. Read my section on Opportunity Lose.
The best kind of trade is when you don’t care what happens!
Always read the “Message of the Day”
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Any questions on this trade, please email me at Coachsjc@gmail.com
Steve
The Options Coach