First I would like to welcome the new subscribers who signed up this week to “Main Street beats Wall Street” and thank you for joining us. Do your studying and read books but take all information in with a grain of salt. The books try to make it sound easy and it’s not. I’m not trying to discourage anyone I just want you to understand it takes time. It takes a lot of studying and paper trading to understand how options work. Options are not like trading stocks! Options have an Expiration Date and you must understand Time Value and how Time Decay works; along with picking the correct stocks. If you don’t rush into this game and do your studying you can make a lot of money; enough to give you security. You must educate yourself and be disciplined. Welcome, and if you have any questions please email me. I will be your mentor!
I would also like to thank the subscribers who sent me encouraging emails. I took a hit this week with U.S. Steel and I hate it! I believe, in this game you must hate to lose money. Also I believe you must take a hit once in a while to bring you back to reality. We are in the second week of May and this is my first losing trade of the year. It was a big hit and the problem is it might not be over. I had 10,000 shares of U.S. Steel and I only sold 5000 to realize the loss. I’m hoping the other 5000 shares I still own goes up this week or in the near future. If not, I’ll take another hit. Google U.S. Steel News and you will read how China is screwing with the price of steel by shipping cheap steel all over the world. I really hope the U.S. will stop excepting the imports or put a large tariff on anything coming in. This cheap steel is adversely affecting the steel companies in this country. If Obama won’t do it I know Trump will. At least he says he will.
Even with this $16,000 hit my week did not end that bad. This week I closed trades with Amazon, Go Pro, Facebook and U.S. Steel. Let’s take a lookout each one.
Amazon
Amazon came out with great earnings and became the darling stock of the market. The problem with Amazon is it’s a $700 stock. If you read my Rate of Return page you will understand it’s not the size of the investment, it’s the rate of return on your investment. I bought 100 shares of Amazon at $711.93 with the intention of selling a Call to bring in a premium. Before I could get the Call Option sold the stock went up to $718. I looked at this situation and decided to just sell the 100 shares. Since I was in the stock for only a few hours and had a $600 profit I grab the cash and called it a day. I sold for $718 and had a $607 profit.
Total Profit +$607
GoPro
I’ve been hold GPRO for a number of months now. The stock dropped below where I bought so I’ve been selling Calls and bringing in nice premiums. The present 20 contract Call I sold on 4/4/16 to expire on 7/15/16 and received a premium of $.70 ($1400). With the stock falling this week the premium was down to $.05. I figured, why hold this option for another few months for a nickel? I got in for a $1400 premium and got out for $100.
4/4/16 – Sell to Open 20 GPRO 7/15/16 $16 C @ $.70 (+$1400)
5/12/16 – Buy to Close 20 GPRO 7/15/16 $16 C @ $.05 (-$100)
Total Profit +$1300
I had 1000 shares of previously owned stock that I sold a Call on. Since I like FB I bought another 1000 shares at $119.90 to sell more Call to expire Friday. Both Calls had a Strike Price of $120. What I wanted to happen is for FB to go above $120 and get assigned on all 2000 shares. Yesterday the stock was above $120 most of the day but at the close it dropped below to close at $119.81. I wanted to sell the stock but at this point no big deal, I’ll sell more Calls on Monday. Since the stock closed below the $120, both Calls expired. Hopefully the price of FB doesn’t drop before I get to do that. It can happen! Here’s the 2 Calls and their profit:
5/4/16 – Sell to Open 10 FB 5/13/16 $120 C @ $1.00 (+$1000)
5/13/16 -Expired 10 FB 5/13/16/$120 C
Total Profit +$1000
5/12/16 – Sell to Open 10 FB 5/13/16 $120 C @ $.90 (+$900)
5/13/16 – Expired 10 FB 5/13/16 $120 C
Total Profit +$900
U.S. Steel
I had three U.S. Steel closing trades this week. The first was a four part trade which involved a Roll Out. It gets a little complicated so I will not list all the trades. If you understand what Rolling is you can go the my trade history and look at all the trades involved. If you don’t know what Rolling is you should go to my Rolling page and start to research.
Four part Roll up & Out Trades
Total Profit +$1000
The next U.S. Steel trade was the sale of the stock while the stock was crashing. I owned 10,000 shares at a price of $17.87. As the stock was going down I decided to bail out of half my position and sold 5000 shares at $14.65. I don’t care what the books say, I don’t like Covered Calls and I love Naked Calls. I don’t feel comfortable owning stock. I completely understand it’s something you have to do in this game but I don’t like it. The books say selling Covered Calls is the safest strategy. Well, not in my book! I had a Call sold on these shares and it’s a good thing because I brought in a great premium. This will be the next trade I list below. The problem was while I was doing great with the option, the stock was crashing. I stopped the bleeding on 5000 shares with a $16,100 loss. I don’t expect everyone to hate Covered Calls, It’s just not my favorite strategy to use. Most books will not agree with me!
5/6/116 – Buy 5000 shares X @ $17.87
5/13/16 – Sell 5000 shares X @ $14.65
Total loss -$16,100
The next trade saved my week. On 5/6/13 I sold 50 contracts of the $19 Call and brought in a $1.00 premium ($5000). The stock went no where near the $19 Strike Price and the option expired. This option was a great trade. I only wish it was naked.
5/6/16 – Sell to Open 50 X 5/13/16 $19 C @ $1.00 (+$5000)
5/13/16 – Expired 50 X 5/13/16 $19 C
Total Profit +$5000
Even with the huge loss with the sale of the stock, the week didn’t end too bad. It is still a loss but with the year I’m having I’ll take it and move on. I am still worried about the remaining 5000 shares of U.S. Steel but if I have to bail out of those also I will. I’ll watch this week and see what the premiums are and see if it’s worth holding on. I might sell a Call out a few months, bring in a huge premium and look at it as a really good CD. Let’s see what the week brings.
Weekly Total Loss – $6293
I truly believe you must hate to lose money. And when you do, do your homework and make sure you do all you can to help prevent it from happening again. Don’t only cry after the fact like a gambler does. Do all you can before you get into a position.
Have a great weekend! Any questions please email me.
Steve
The Options Coach
Hey Coach,
The character of a true investor is one that boasts his wins but also divulges what he lost.
Nice going this year and looking forward to hearing more of your trades in the coming weeks ahead.
Yours truly,
Stock Coach
Gerry,
Thank you for the note! This is a learning blog. I will concentrate on complete transparency. This is a very difficult game. We must learn from our mistakes but sometimes you lose money without make a mistake. Sometimes it’s just the way the ball bounces. Most of the times our mistakes will stem from greed. These mistakes we must stop, but there are times we will lose because of the way the ball bounces.
Steve
The Options Coach