I had a 20 contract Covered Call with Advanced Micro Devices (AMD) with the Call expiring this Friday. Yesterday I sold another 20 contract Call to expire next week July 28th. Both with a $15 Strike Price. You can read about the Call I sold yesterday at Advance Micro Devices Naked Call. In this post I explain that I didn’t think I would be assigned this Friday because I didn’t believe the stock would hit the $15 Strike Price. So… I sold another Call that was Naked but would become Covered once the Call expiring this Friday, expired. It would become covered because I would still own the 2000 shares without assignment on my existing Covered Call
I was talking to my broker at Charles Schwab yesterday and I explained that if the premium of an option fell below 5¢ they should let me “Buy to Close” with no commission so I could free up some cash for another trade. I got the idea from my son in-law Bob who has that deal with his broker. Bob is Main Street beats Wall Street’s contributing writer who wrote out Advanced Technical analysis section.
AMD was down yesterday and is down today. The premium was down to 2¢. I decided to Buy to Close the option expiring this Friday which was $40 (2¢ X the 20 contracts). I received $500 when I sold the Call and just did a Buy to Close for $40, so I have a profit of $460. I made this trade commission free because the premium was under 5¢. This trade did 2 things for me. It freed up some margin if I’m interested in making another trade this week, plus, I no longer have a Covered Call and a Naked Call. I only have a Covered Call which expires next Friday the 28th. That Naked Call had a Risk Factor 5 on it but now that it’s covered it’s now Risk Factor 1.
7/12/17- Sell to Open 20 AMD 7/21/17 $15 C @ 25¢ (+$500)
7/18/17 – Buy to Close 20 AMD 7/21/17 $15 C @ 2¢ (-$40)
Profit +$460
If you have any questions on my free commission trades or why I made this trade send me an email.
Steve
The Options Coach