I have been watching GoPro (GPRO) for about a year now. Early this summer the stock was in the $60 range. It took a huge drop as the summer progressed and continued dropping for the rest of the year. Today GPRO is at $18.65 but it’s up a little on a historical down day. It’s up $.60. I don’t think this stock will continue going up so I sold a Naked Call. Make sure you read the pages on “Naked Calls”, “Selling Call Options” and “1 Week/1%.” When selling Naked Options it’s not imperative that you pick the direction the stock will move. At least not pick exactly where the stock will go. You have a little cushion. With GPRO at $18.65 I sold the $20 Naked Call. The stock can move down, stay the same or go up a little and I will make money. As long as it doesn’t go above $20. If it get close to $20, I’ll buy the stock to make it a Covered Call. Here is the order. Make sure you understand all parts of the order form. Read my page on “Option Order Form”, it will explain each Part.
Sell to Open 20 GPRO 1/8/16 $20 C @ $.26
I sold 20 contracts of GPRO $20 Calls with the expiration date of 1/8/16 which is this coming Friday. It’s a 5 day option and I received $.26 per share. 20 contracts is 2000 shares at $.26 per share for a total premium of $520. This trade falls under one of my most used strategies, “1 Week/1%.” You will find this page under “Philosophy, Strategy & Risk.” When selling Calls I try to get a 1% return on my money invested. When selling Naked Calls you do not invest any money because you’re not buying the stock, but I look at the price of the stock and calculate what I would invest if I did a Covered Call. The price of the stock is $18.65 so I look for an option in the option chain that will give me 1%, that would be a $.18 premium. In this case I got $.26 which is much higher than 1%. In this case on 2000 shares the investment would be $37,300 and the return is $520. If you divide 520 by 37,300 you get the rate of return. This rate of return is 1.3%. That’s for one week! If I did this every week my annual return would be 67.6%. Grasshopper, I think you are beginning to understand!
This is a Naked Call so I put a Risk Factor of 4. Make sure you read “Naked Calls”, it’s one of the riskiest trades but if you watch and buy the stock if you have to, it is a great strategy. If the stock gets close to the $20 Strike Price I will cover this Call with the buying of the stock. Make sure you check back on “Main Street beats Wall Street” on Friday or Saturday to see how this trade works out. You will see if I make money or I lose money.
The Options Coach