Sold My SQ Long Call

Two days ago, on Monday, February 26th, with the stock at $74.75 I bought 1 contract of a Block (SQ) Call option. I bought 1 SQ 6/21/24 $75 Call for a premium of $8.65. This position cost me $865.

Today with the market down SQ is moving up. When I bought this position for $865 my goal was to get out with $10.50 as soon as possible. If I sold this position for $10.50 my gain would be $1.85 for $185. The return would be 21%. This is a great return with a two day position.

This morning, with SQ on the move, I was watching closely. The stock moved up to where the premium was at $10.50, which was my goal for exit. As I was watching the stock was not slowing down so I placed a sell order with the price of $11. Within 2 or 3 minutes I was filled.

 

2/26/24 – Buy to Open 1 SQ 6/21/24 $75.00 C @ $8.65

2/28/24 – Sell to Close 1 SQ 6/21/24 $75.00 C @ $11.00

Profit $235

Selling this position at $11 gave me a gain of $235. My Rate of Return is 27%. This is a great return for a two day trade! Let me ask you a question, if your bank offered you a 1 year, $1000 Certificate of Deposit (CD) and said you would receive a 25% return, would you deposit the money? Of course you would. Well, I just did that in two days. I am well aware CD’s are guaranteed interest and Buying option is risky business, but I feel, if done correctly, you can mitigate a lot of the risk. I guess the real question is would you enter the CD for a year with the interest at 3%, or would you rather be less conservative and try to reduce risk by learning about options and getting the 27%? Everyone is different. Everyone’s risk tolerance is different, everyone’s finances are different and everyone is wired differently.

Let’s talk a little on how to reduce the risk of buying options. #1, you must do your homework! Do not listen to me or anyone else on what stock to buy. How often do I say “do not mimic my trades?” You can get an idea from me about a stock but you must look into that stock to see if you come up with the same forecast; and does it fit into your risk tolerance? Do not rely on my homework, or anyone else’s. Main Street beats Wall Street is to teach how options work and to give ideas on some strategies. And I try to show that with real trades. It is not to pick winners! I leave that to Cramer.

The #2 way to reduce risk is to know exactly how options work. Know what Time Decay is and how it works. Know how Time Decay is your friend when selling options and your enemy when buying options. When buying the position in this post my Expiration Date was out to June and I only kept the position for two days. Why did I pay all of that extra money on time when my goal was to keep the position for a short period? The answer is protection! Many times a stock does not move the way you predicted. Buying the time, the life of the option, out to June gave me time for the stock to recover if it didn’t move the way I predicted. Buying options can be a risky game, short term options are very risky (gambling).

I’m not a huge fan of Block (SQ). It’s way down from its highs of 2 years ago. It came out with great earnings and I felt it would make a move in the short term. I have no feeling on what it might do in the long term. But I do feel it can make a nice move now, at least until its next earnings. I will be watching and I will probably be involved in the stock very soon. maybe before the end of the day lol.

Any question on buying option send me an email.

 

Successful trading,

Steve

The Options Coach