On 10/14/20 I bought 2000 shares of Peloton at $135.75. These shares are covering a Call I sold to expire on 12/24. I sold 20 PTON 12/24/20 $35 Calls for a premium of $2.15 for a total of $4300.
If you notice the Strike Price is $135 but I bought the stock at $135.75. If assigned I’d lose 75¢ on the stock sale if assigned. I did this because I didn’t think I would be assigned. Now PTON is on the run with the COVID cases going up. As I write the stock is at $133.10. If the stock continues on it’s path I will easily get assigned next Friday.
On this Monday, 12/14, in anticipation of not getting assigned on this Covered Call I sold another 20 contract Call with PTON to expire on 1/15/21. This Call gave me a premium of $3.85 for a total of $7700.
I now have a different outlook on the assignment of my 12/24 Call. I think I will get assigned. I decided to buy another 2000 shares of PTON to cover my 1/15/21 Call. I bought 2000 shares at $132.50.
Buy 2000 Shares PTON @ $132.50
The buying of these shares did 2 things. #1, I no longer have a Naked Call on a hot stock. All Calls are Covered! #2, it lowered my average cost of my PTON shares owned to $134.12. Now, if assigned on my $135 Call I will not lose money on the stock sale. Below are the (2) 20 contract Call I have. The first is the Covered Call I had going and the second is the Naked Call I had, which is now Covered.
First PTON Covered Call
Buy 2000 Shares PTON @ $134.12
Sell to Open 20 PTON 12/24/20 $135.00 C @ $2.15 (+$4300)
Second PTON Covered Call
Buy 2000 Shares PTON @ $134.12
Sell 20 PTON 1/15/21 $140.00 C @ $3.85 (+$7700)
As I write PTON is pulling back. I did expect it to but I got nervous about getting assigned at $135 and having a Naked Call to expire in January. I think both of these positions will work out well.
If you have any questions on this move or my strategy, send me an email. When trading options it’s very important to learn how to make “adjustment trades” to counteract market moves. On this road to being a successful trader we will always run into potholes and road hazards. We must negotiate ourselves around them.
Successful trading,
Steve
The Options Coach