Most of you Main Street beats Wall Street readers know I do not buy too many Calls. I’m a Call Seller! My strategy is to bring in premiums and take advantage of Time Decay, not be a victim of it! It is a fact that 80% of all Calls bought expire worthless. I’ve bought many Calls in my trading days and made a lot of money, quick! However, I also lost a lot of money in my “getting my feet wet” days. When I was excited about getting “rich quick” as opposed to “slow and steady/steady and slow,” which is my strategy today.
From time to time I see a good opportunity to buy an option. As I preach many times, the options market is a great place to make money, and knowing & understanding all the strategies is very important. Buying options and understanding Time value, Time Decay, Intrinsic Value, In-the-Money, At-the-Money, Out-of-the-Money etc. are all very important, and prerequisite to making any option trade.
Once you understand all areas of options trading you will come across many situations where you might apply a specific strategy, even if it’s not one you practice on a daily basics. Today I did just that.
I own 500 shares of Cree (CREE). Today I sold a 5 contract Covered Call. I did this on a stock I feel can go up a bit. I own the stock at $57.70 and I sold the $58 Call. Selling Calls and bringing in premiums is my main strategy. So, today I did my strategy even though I feel the stock can go up higher. The bottom line is you never know what a stock might do. Today it’s up but tomorrow it can tank.
Today my feeling of this stock moving up was strong. After I sold the Call the stock was fluctuating. When it was down a little I decided to buy a 5 contract Call on Cree so if the stock went up above my Strike Price I would be able to get some profit which would be limited with the selling of my $58 Call.
When buying Calls I like to go out a little on the Strike Price to protect a little against Time Decay. I also bought an In-the-Money Call. The stock was in the $57.50 area and I used the Strike Price of $55.
I bought 5 Cree 5/17/19 $55 Calls for $4.70. The Call was a little expensive because I went out to May 17th, there was some Time Value I paid for, and since it was an In-the-Money Call I had Intrinsic Value I was paying for. I know for the normal Main Street beats Wall Street reader who have been concentrating on selling Call, buying Calls is a whole different animal. You must understand it all if you want to be an options trader.
Because of the amount of Calls that expire worthless, when buying Calls I’m very careful. And not greedy! When I bought the call for $4.70 I put in a sell order at a Strike Price where I would be happy with the profit. I put the sell order in at $5.70. If filled I would make $1 on my 5 contracts for $500. It turns out the stock moved more than I thought and I was filled on my sell order quickly. As I write the stock is still moving. It’s up to $58.95. I’m out but if I was still in I would be up a few more bucks. I can’t worry about that; I’m up $500 and I’m out! I still have my Call sold and it looks like I’ll be delivering my 500 shares at $58 this coming Friday. Below are the orders for the buying and selling of the Call.
Buy to Open 5 CREE 5/17/19 $55.00 C @ $4.70
Sell to Close 5 CREE 5/17/19 $55.00 C @ $5.70
Profit +$500
The stock is still going up but I took my $500 and put it in my mattress!
If you have any questions on this move or buying options send me an email.
Steve
The Options Coach