Today is the first trading day of May. Traditionally May is the start of a sideways or down market. Please go to my Message of the Day on the site and see what I have to say.
Staying with my strategy I just sold a Naked Call. It’s another big one! I sold 100 contracts of the $20.50 Calls on U.S. Steel expiring this Friday. I received a premium of $.30 for a total of $3000. There are a few reasons why I liked this option. To start, I still think the steel industry will have a pull back. I know I’ve been saying this for a few weeks now and it hasn’t happen yet but I’ve been doing OK with out the pull back and if there is a pull back I’ll do very well. If you look at it’s chart it looks like the stock might have hit resistance in the $20 area. This is why I sold the $20.50 Calls. I sold the Call when the stock was at $19.40. It still has over $1 before it goes In-the-Money. You know I’ll be watching closely until expiration! This is a Naked Call, if I were to buy the stock and sell a Covered Call I would have to invest $194,000 for 10,000 shares at $19.40. I did not invest any money and I pay no margin interest. This is why I love Naked Calls. If I invested the $194,000 and received a premium of $3000, thats a 1.5% interest in one week. I’m getting the 1.5% interest on the $194,000 without laying out the cash. That’s a lot of interest! This is truly “money for nothing and your chicks for free” (I love that song lol). I’m giving this trade a Risk Factor of 4. It is a Naked Call which will normally get a 5 but it’s a $1 away from the Strike Price and I’ll be watching closely. If it gets close to the Strike I’ll cover by buying the stock. Here’s the sell order:
Sell 100 X 5/6/16 $20.50 C @ $.30 (+$3000)
I must say the stock is moving better than I thought. As I write this it’s up to $19.90 and running. I may be covering sooner than I wanted to.
I do not like owning this stock but with it running I had to cover this Call. I just bought the 10.000 shares at $20.18. This is the way it goes and this is truly live trading.Now I hope the stock goes up to $25 lol. Here’s the buy order:
Buy 10,000 shares X @ $20.18
I keep the Risk Factor at 4 because of the risk of the stock going down and owning 10,000 shares.
Steve
The Options Coach