I owned 2000 shares of RH the last few weeks and I’ve been bringing in some nice premiums. This Monday I sold a 20 contract $73.50 Call against these shares. Today the stock was up big to $77. I felt the stock was gonna start pulling back so I sold half of my stock position (1000 shares). The problem with this move is, I now own 1000 shares of the stock but I have 20 contracts of the Call sold, I’m Naked on 10 contracts. I did this with the hopes the stock will go down and I can buy my way out of the Calls and close the Naked position. Well, the stock did drop down and when it was at $76.02 I was executed on a “Buy to Close” on 10 contracts for $3. Now that I sold the 1000 shares and did a “Buy to Close” on 10 contracts, I now have a 10 contract Covered Call left. Here are the trades getting out of half my position.
9/22/17 – Buy 1000 Shares RH @ $72.50
10/4/17 – Sell 1000 Shares RH @ $76.85
Profit +$4350
10/2/17 – Sell to Open 10 RH 10/6/17 $73.50 C @ $1.00 (+$2000)
10/4/17 – Buy to Close 10 RH 10/6/17 $73.50 C @ $3.00 (-$3000)
Loss -$2000
Total profit on the Covered Call +$2350
What did I make this move?
I bought the stock at $72.50 and sold the 1000 shares at $76.85. This gave me a $4350 profit. But I still had the obligation to deliver the stock at $73.50. When I did the “Buy to Close” on the option it bought me out of the obligation of delivering the stock at $73.50. I sold the option for a premium of $1($1000) and bought it back for $3 ($3000) for a loss of $2000. With the stock gain of $4350 and the loss on the option of $2000, I have a profit of $2350. If I held this position until expiration (this Friday) my profit would have been $2000. $1000 on the stock and a $1000 premium. Because I made this move I locked in an extra $350 in profit and I freed up some margin to make another trade. Possibly with RH tomorrow.
If you do not understand this move, please send me an email.
Steve
The Options Coach
Do you always recommend buying the stock when you buy the contracts? My game plan has been to buy a particular contract then sell when it hits a profit I am happy with. I am new to the options game (about a year) and still in the learning phase.
Robert,
I DO NOT buy contracts. I sell contracts! And you being in this game for only a year, I strongly recommend you NOT buying options. 70 or 80% of people buying options lose their money. Do your studying and any other question, send me an email.
Steve