Just yesterday I bought 2000 shares of RH @ $75.08 and sold a 20 contract Call for a premium of $1 for $2000. With RH up over $3 today and my account looking very nice, I decided it take a little less money and get out of half of my Covered Call. I sold 1000 shares of my RH stock and did a “Buy to Close” on 10 contracts to get out of my obligation to deliver that 1000 shares this coming Friday. This “Buy to Close” cost me $1.65 for a total cost of $1650. I brought in a premium of $1, on the 10 contracts that’s +$1000. Buying my way out of this option leaves me with a loss of -$650 on the option only. I bought the stock at $75.08 and sold the 1000 shares at $77.35 for a profit of +$2270. With the stock gain and the option loss, I have a total profit of $1620. This is a one day profit on half my position, and it’s already in my mattress!
10/10/17 – Buy 1000 Shares RH @ $75.08
10/11/17 – Sell 1000 Shares RH @ $77.35
Profit +$2270
10/10/17 – Sell to Open 10 RH 10/13/17 $76.50 C @ $1.00 ($1000)
10/11/13 – Buy to Close 10 RH 10/13/17 $76.50 C @ $1.65 (-$1650)
Loss -$650
Total 1 Day Gain +$1620
If I held until expiration, and selling at the Strike Price of $76.50, I would have made $1420 on the 1000 shares. And I would have kept the $1000 premium for a total gain of $2420 and NOT $1650. A difference of $770.
Some might say, why did you close out this position? Why not hold until expiration, 2 day away?
#1) Well, I did hold half my position for the complete profit. #2) You might not believe it but my account is up 75% in the last 3 months. That’s crazy! I’m trying my ass off not to give anything back. #3) This stock is so volatile it could go down well below my Strike Price by Friday, so I wanted to lock in profit. And if any of you have large profit in your account, I suggest you do the same.
As I write the stock is right around where I sold, $77.35, so hopefully I get assigned on my remaining 1000 shares and I get the total profit I original signed up for.
Steve
The Options Coach