This was another very good week of locking in profits, however, it wasn’t a great week for the market and the positions I still hold.
Trading options is an aggressive way to invest. You can adjust your trading strategies to be high risk, which would give you crazy high rates of return, or you can stay low risk and take in less in return. I am a low risk options trader which is evident in my returns. I bring in lower returns but I am very consistent with winning trades. The high risk options trader can bring in returns that are over 100% per trade. But many times these trader’s options will expire worthless. In my opinion, the high risk trader is participating in pure gambling.
This week one of my trades was a Covered Call with Micron. When the market was in one of it’s pullbacks I exited the option position I sold with a “Buy to Close.” I closed the position with a $570 profit. I was in the position for 2 days. A Covered Call is when you buy a stock and sell a Call Option to someone for a premium. This is the #1 safest strategy when trading options. If fact it’s so safe you can trade Covered Calls in your IRA. You cannot buy options or sell Naked Call Options in your IRA. The rules of an IRA lets you trade Covered Calls because it is a very safe, low risk investment. When I did the “Buy to Close” on the option I was left only owning the shares I sold the Call against. When I exited my Micron Covered Call trade I reported the trade with a post. I reported that I did a “Buy to Close” with a profit of $570 and I still owned the stock. In that post I received a message from a Main Street beats Wall Street loyal reader. And the reader wrote: “Yes but you have a paper loss of $3715. !!! What are you going to do if it continues to trade down”?
The multiple exclamation points made me feel the reader was asking the question with a sense of urgency that my stock was down from where I purchased.
If you want to be a stock trader or an options trader you must understand that stocks do not only move up. If you know of a stock that only moves up please send me that stock. The truth is there are none. The market moves with news! And news is constantly being reported. Stocks will always respond to news by moving up or down. This is how markets react and the stocks will always fluctuate. If you have low risk tolerance and you want to be an options trader, Covered Calls are the way to go.
Back to the reader’s question, “What are you going to do if it continues to trade down”?
I guess I’ll do what Warren Buffett will do if Apple trades down! The truth is, I don’t feel Micron will continue down. That’s why I picked this stock to do a Covered Call. It’s a very good stock with multiple “Buy Ratings.” But anything can happen! The stock market or options trading is not a guaranteed positive return. There is always risk. If Micron continues down I’ll hold on. I’ll make a decision as I see how low it goes. My plan is the stock will be back to my purchase very soon and I’ll continue selling Calls until I get assigned. Once in a while a stock will go down and stay down for a long time. In this situation the money I have invested in the stock is out of my trading funds for a while. It is because of this potential problem my #1 strategy is selling Naked Calls, which presents a bigger problem if the stock moves against your desired direction.
Besides Micron, I’m also holding Applied Materials and Advanced Micro Devices which were part of Covered Calls and are below where I got in. If the market goes down and these stock continue down it will seriously curtail my trading and my gains. Let’s hope this doesn’t happen and I continue bringing in nice returns.
As you can see I had a lot of trades come to an end this week. Let’s take a look.
Nvidia
I bought an option and I jumped out in the same day with a $500 profit.
7/29/19 – Buy to Open 10 NVDA 1/17/20 $175.00 C @ $17.25 ($17,250)
7/29/19 – Sell to Close 10 NVDA 1/17/20 $175.00 C @ $17.75 ($17,750)
Profit +$500
Nvidia
Bought another Call the next day and had the same result.
7/30/19 – Buy to Open 10 NVDA 1/17/20 $175.00 C @ $17.20 ($17,200)
7/30/19 – Sell to Close 10 NVDA 1/17/20 $175.00 C @ $17.70 ($17,700)
Profit +$500
Apple
Bought an Call on Apple on 7/11/19 and got out this week. This was a long term option and I wanted to hold for a while but I felt trouble brewing. I got out with a nice profit after earnings.
7/11/19 – Buy to Open 3 AAPL 6/19/20 $205.00 C @ $19.00 ($5700)
7/31/19 – Sell to Close 3 AAPL 6/19/20 $205.00 C @ $26.00 ($7800)
Profit +$2100
Micron
This is the trade I wrote about above. I did a Covered Call and got out of the Call a couple go days early with a Buy to Close for 5¢.
7/30/19 – Sell to Open 10 MU 8/2/19 $48.00 C @ 62¢ (+$620)
8/1/19 – Buy to Close 10 MU 8/2/19 $48.00 C @ 5¢ (-$50)
Profit +$570
Applied Materials
This was a Covered Call. The Call expired and I still own the stock.
7/29/19 – Sell to Open 10 AMAT 8/2/19 $51.00 C @ 60¢ (+$600)
8/2/19 – Expired 10 AMAT 8/2/19 $51.00 C
Profit +$600
This was another Covered Call with TWTR. The Call expired and on this one I also still own the stock. The only difference with TWTR and AMAT is TWTR closed very close to my Strike Price and I was able to sell another Call right at the close that will expire next Friday, the 9th. This week’s Call I received a premium of $530 and the new Call, expiring next week, I received a premium of $900.
7/30/19- Sell to Open 10 TWTR 8/2/19 $43.00 C @ 53¢ (+$530)
8/2/19 – Expired 10 TWTR 8/2/19 $43.00 C
Profit +$530
Total Weekly Gain +$4800
As I said in my opening line, this was another very good week but I’m still holding a few stocks that are below my purchase price, which is the concern the reader I referenced above had. Whatever happens to the market, this $4800 is locked-in, and my mattress is getting thick!
Let’s hope the market starts up and I can get Calls sold against the stocks I’m holding.
Any questions send me an email.
Have a great weekend!
Steve
The Options Coach