On March 7th I bought 1000 shares of Netflix (NFLX) at $97.95. I’ve been selling Calls on the stock since I bought it with the exception of last week, I put in numerous orders but never got executed on a sale. This morning with NFLX up a bit I put in another order for an option I liked and it got executed a few minutes ago. With the stock up about $.65 today and the stock at $98.99 I sold 10 contracts of the NFLX 4/1/16 $ 101 Calls and received $1.15 for a total premium of $1150. I put a Risk Factor of 1 on this trade because it’s a Covered Call on a previously owned stock. I bought the stock at $97.95 and the Strike Price is $101. I really don’t care if I get assigned or not. If I get assigned I make $3.05 on the stock which would be a profit of $3050. Plus the premium of $1150 for a total profit of $$4200. This reminds me of a “Dire Straights” song, “Money for nothing and your Chicks for Free.” lol If I don’t get assigned I keep my stock and I keep the $1150 premium. The only danger is the stock taking a big dip, but I own the stock anyway so I would have been involved in the dip even if I didn’t sell the Call. Many book will tell you the big danger is the stock going up and you not making profit on the stock above the $101 Strike Price. This is called an Opportunity Lost. I do not let this bother me. If you let this bother you, do not sell Calls. Even with an Opportunity Lost I’ll have a profit of $4200. No man ever went broke taking profit! I move on to the next deal! Read my page on Opportunity Lost.
Make sure you understand what “Assignment” means. This is when the stock price moves above your Strike Price by Expiration Date and the Call buyer exercises his right and takes your stock at the Strike Price. In the case above, if NFLX goes above $101 the Call buyer will buy my stock at $101 and I will no longer own NFLX stock. with the option I just sold above, I am fine if this happens. I will have a nice profit and I move on.
To completely understand my trade read the links:
Steve
The Options Coach