I just sold 10 Micron (MU) Naked Calls.
Micron has been on a run lately. It moved from a support level of $32.14 on June 17th up to $45.27 earlier today. This is the highest it’s been since early Oct 2018. Today’s candle in the candlestick chart looks like it’s the start of a reversal pattern. I sold a 10 contract $45 Call. This Call will expire this Friday. When I sold the Call the stock was at $44.45. I received a premium of 47¢ for $470.
Sell to Open 10 MU 7/19/19 $45.00 C @ 47¢ (+$470)
This is considered a very dangerous trade. It’s a Naked Call on a hot stock, and it’s only 55¢ Out-of-the-Money. This stock can make a move and go up 55¢ anytime and put the stock above my Strike Price. However, I’m giving this trade a Risk Factor 3 and not a 5, which is the most risk. The reason I gave this a Risk Factor 3 is I entered a Buy-Stop order at $44.90. If the stock goes up to $44.90 1000 shares will be bought into my account to cover my Call, which would be about to go In-the-Money. I have a strong feeling that won’t happen, but anything can happen!
You must understand that a Buy-Stop order does not guarantee you will get filled. Many times the stock will jump over night. Buy-Stop orders will only work during market hours.
Wish me luck!
Steve
The Options Coach