Hi All, It’s been a few days since my last post! This has not been a good time for the market. I believe this is the worst start to a year in the history of the market. Having said that, this is not the reason why I haven’t made a trade in a few days. The reason is I’m fully invested with NFLX, and Calls were sold on my shares. But as you know, today is Expiration Day. Most of those shares will be freed up after the close because the Calls I sold will be expiring. I will be writing more about NFLX tomorrow after the Call expire.
You might remember I still own 2000 shares of GoPro (GPRO). Last week the stock took a big dip on a bad guidance report. I’ll hold on to the stock in hopes of a recovery. While I do this I’ll be selling Calls to continue to make money on the stock even with the stock down from where I bought in. Now that the stock settled down and has been trading sideways, I just sold some Calls. The stock is at $11.15 as I write. I sold 20 contracts of the $17 Calls with the expiration of April 15th. This is not the normal length of contract I sell. I sold the $17 Calls and went out a bit for 2 reasons. #1, I wanted a decent premium. The longer out you go the more time value in the premium. And #2, if the stock gets up to $17 I would make most of my money back I invested in the stock purchase. If I put a Strike Price of $15 and get assigned I would not recover enough of my money on the stock investment. I want the stock to go up but I really don’t want to get assigned. I want to sell Calls on GPRO until the stock price gets back to where I bought. If the stock makes a move and I do get assigned at $17, between the stock gain and the premiums I received I would be close to being even. If I don’t get assigned I’ll sell more Calls. With this Call I received a premium of $.55. On the 20 contracts (2000 shares) thats a total of $1100. I do not give advice on where to invest I only show you what I do. But if you did a Covered Call buying the stock today, you would get a 5% rate of return in less than 3 months. Thats a nice interest rate! times that be 12 months and you got 20%. I do not recommend making this trade for a few reasons. #1, this is not a good time to buy stock. #2, GPRO is a hurting stock right now. It seems to have found a bottom but if this market continues to go south, GPRO will follow. I did it because I already owned the stock and I’m bringing in premiums while I hope for it to go back up. Since it was a previously owned stock and I sold a Covered Call, this gets a Risk Factor of 1. Here’s the order:
Sell to Open 20 GPRO 4/15/16 $17 C @ $.55
Grasshopper, I mentioned I don’t want to get assigned. An assignment is when the stock goes up above the Strike Price and your stock is taken from you. You had a contract to sell your stock at the Strike Price and the Call Buyer decides to exercises his right to buy your stock. Your stock is automatically sold at the Strike Price.
Steve
The Options Coach