I just completed a Buy-Write on YELP. I really don’t want to own any more stock but the market is moving well. I don’t want to get greedy but I also don’t like to miss a great opportunity. With this trade I purchased 1000 shares at $37.80 and I sold 10 contracts of the 9/16/16 $38 Calls. This is basically an At-the-Money Call. I made this trade in hopes to get assigned. I got a premium of $.60 for a total premium of $600. The Rate of Return is 1.5%. If my wish comes true and I get assigned I’ll make the $600 premium plus the $.20 on the stock which will be $200 on the 1000 shares. If this happens the return will be $800 ($600 premium + $200 gain on the stock). That would be a gain of 2.1% in 5 days. Please read the Rate of Return page to understand where the numbers come from. This being a Buy-Write Covered Call, At-the-Money, I give this trade a Risk Factor a 1. Here’s the two orders:
Buy 1000 shares YELP @ $37.80
Sell to Open 10 YELP 9/16/16 $38 C @ $.60 (+$600)
Remember it’s not the amount of return it’s the Rate of Return on your investment!
Steve
The Options Coach