On 9/11/17 I bought 1000 shares of Micron (MU) at $32.85. A week later, with the stock at $35.70 I sold a 10 contract $40 Call Option to expire on 1/19/18 which is consider a LEAP option (long term option). Since I entered this long term Covered Call the stock continued moving up. When I sold the Call, many investment firms had a price target of $40. However, with the company having a great earnings report last week, many firms raised their price target to above $70. With a Covered Call you continue making money on the stock until it hits the Strike Price. In this case $40. Today the stock hit the $40 mark. First, with the belief MU will continue up, I decided to “Buy to Close” the option at a loss to try to make more money on the stock moving up. When I sold the option I received a premium of $1.70 ($1700). Today the premium was up to $3.70 ($3700). With the “Buy to Close” I took a loss of $2000 to get out of my obligation of delivering my stock on 1/19/18 at $40. Remember, I bought the stock at $32.85. I have a very nice profit on the stock already.
Second, after getting out of the option I looked into the stock and I decided to enter a $40 Stop Loss order in the case the stock started down a little. I wanted to lock in stock profit. I didn’t think the NASDAQ was gonna hold on to it’s gains and I felt the stock may drop off a little. In no way do I think MU is done going up, I just wanted to grab profit, and watch what the stock does in the short term. I know I’ll be back in the stock very soon because I believe it will go above $60 by the end of the year. I just got out today in the case the stock has a temporary pullback. It’s a very hot stock right now and I will be back in. Below are the trades involved in this Covered Call LEAP.
Micron Covered Call LEAP
9/11/17 – Buy 1000 MU @ $32.85
10/2/17 – Sell 1000 MU @ $40.00
Profit +$7150
9/18/17 – Sell to Open 10 MU 1/19/18 $40.00 C @ $1.70 (+$1700)
10/2/17 – Buy to Close 10 MU 1/19/18 $40.00 C @ $3.70 (-$3700)
Loss -$2000
Total LEAP Profit +$5150
As I write the price of Micron is down to $39.50.
These trades were made about 45 minutes ago. I’m trying to type as a watch the very sad news coming out of Las Vegas. So, so sad! I’ll be praying for the victims and their families. I pray that our politicians on both sides of the isle can learn, come together, and come up with solutions to help prevent this from ever happening again.
May God bless America,
Steve
The Options Coach