This week I had 2 option trades come to a close. Both started as short Naked Calls, which means I sold the Calls, but ended up as Covered Calls. Most Main Street beats Wall Street readers know I do not buy options, I’m an options seller! The 2 stocks I was dealing with was Micron (MU) and RH (RH). RH used to go by the name Restoration Hardware but changed their name to just RH. I’ll go over each trade to see how they worked out.
Micron
On Monday, with MU at $28 I sold an At-the-Money Call. I sold 30 contracts of the 5/5/17 $28 Call for 40¢. This gave me a total premium of $1200. The next day (Tuesday) the stock dropped below my Strike Price so I covered my Call by buying the 3000 shares of the stock at $27.90. Getting 40¢ on a $28 stock exceeded my strategy “1 Week/1%.” A 40¢ premium on a $28 stock is a Rate of Return of 1.4%. Not bad for a 5 day trade! On Friday, Expiration Day, the stock closed at $28.20 so I was assigned. I keep the $1200 premium, plus, since I was assigned at $28 I made 10¢ on the stock ($300).
Sell to Open 30 MU 5/5/17 $28.00 C @ 40¢ (+$1200)
Expired 30 MU 5/5/17 $28 C
Profit +$1200
Buy 3000 Shares MU @ $27.90
Assigned 3000 Shares MU @ $28
Profit +$300
If all trades worked out like this one I would make a lot of money with NO stress.
RH
My RH trade worked out the same way, however, with this trade I had a huge Opportunity Lost.
On Wednesday, 5/3, RH was on a run and was up over $2.50. And the stock has been in an uptrend for a few months. I felt there might be a pull back so with the stock a little below $51 I sold a 2 day, 10 contract Naked Call with the Strike Price of $51.50. Since the stock has been moving crazy I put on a buy order at $51.30 just in case it continued up. Well the stock did continue up and I was executed on the 1000 share buy order. The stock ended the day at $51.75. At this point I have a Covered Call. The next day, Thursday, the company announced that they were starting a stock buy-back program. This is very positive news for a stock. On Thursday the stock opened up $5. It made me very happy that I was executed on the 1000 shares because if I wasn’t I would have been down on my Naked Call ($5000). The stock stayed at this level until closing on Friday. My Call expired and I keep the $500 premium and I had to deliver the stock at my Strike Price of $51.50. I did make 20¢ on the stock but I had a $5 Opportunity Lost. Please read my page on Opportunity Lost to completely understand. You will also learn that I don’t care about Opportunity Lost. I’m in the options game not in the stock game. I think about Opportunity Lost with a “what if” smile, but I don’t worry about it.
Sell to Open 10 RH 5/5/17 $51.50 C @ 50¢ (+$500)
Expired 10 RH 5/5/17 $51.50 C
Profit +$500
Buy 1000 Shares RH @ $51.30
Assigned 1000 Shares RH @ $51.50
Profit +$200
When I sold the Call RH was a little below $51. Getting a 50¢ on a $51 stock is a little less than 1%. With the sale of the stock, which I made 20¢ on, the Rate of Return on the Covered Call was 1.3%. I love this type of return and it’s what I look for. This was a 2 day trade.
If you have any questions on these trades send me an email.
Total Weekly Profit +$2200
Have a great weekend!
Steve
The Options Coach