Yesterday I sold a 10 contract Naked Call on Weight Watchers (WTW). I held the position for an hour and I made a quick $300. The stock pulled back after I sold the Call; since it was a Naked Call and I could get out in such a short time, I decided to grab the $300 to end the position.
Also, yesterday, WTW continued moving down. And the stock really took a beating after earnings last week. Today the stock is up over a $1. Since last June Oprah, as a huge shareholder, took a $500 million hit. I do not see her taking that laying down. I think we will at least get a “Dead Cat Bounce.” With this in mind I just did a 10 contract At-the-Money Buy-Write. With this trade I’m only looking to make the premium and get out. The reason I bought the stock to cover my Call is just in case we get that “Dead Cat Bounce” I will not be holding a Naked Call. Below are the positions of my Buy-Write.
Weight Watchers Buy-Write
Buy 1000 Shares WTW @ $22.00
Sell to Open 10 3/8/19 $22.00 C @ .60 (+$600)
I’m looking for the stock to go above my Strike Price of $22 by this Friday, when my Call expires. If this happens, I will be assigned on the 1000 shares of stock at the same price I bought them for. However, I will keep the $600 premium I received for selling the Call. Like I said, I’m in this position for the premium ONLY! If I wanted to make money on the stock I would have sold the Strike Price of $22.50 or $23. If I did this I would have made much less with the premium. I’m in this game for the premiums.
Since this is an At-the-Money Covered Call I give this trade a Risk Factor 1.
Send me an email if you have any questions about this move.
Steve
The Options Coach
Hey coach….on this WTW trade…what happens if the stock tanks down to 21 or 20 at expiry …???
Hi Greg,
When ever you do a Covered Call there’s always a chance the stock goes down. Selling the Call against the shares is a hedge because if the stock goes down you will be making money on the short Call. In the case of my WTW Buy-Write the stock did go down and it closed at $20.93. With the stock going down the premium went from .60 down to .20. On the 10 contracts (1000 shares) I brought in $600 and now with the stock down I can do a “Buy to Close” and pay $200, giving me a $400 profit. However, I’m gonna hold the Call until expiration to keep the entire $600. If the stock is below my Strike on Friday I’ll keep the $600 premium and keep the stock. I feel with Weight Watchers going down so far lately, I think it will be above my by-in price of $22 soon. I’ll hold the stock until it is above $22 and sell another Call. If it tanks and stays below $22 for a while, then it might be a loser. Let’s watch and see what happens. If you have any other questions send me an email. Thanks for reading! Steve