I own 5000 shares of U.S. Steel (X) which I bought at $16.85. For the last few weeks I’ve been selling Calls against these shares and bringing in a nice amount of premiums. At the opening today I owned the 5000 shares and I had a Call sold on these shares as of last Wednesday, April 6th. This Call expires this coming Friday. It’s an $18 Call.
Now we have earnings season upon us. I do not like owning positions while a company is reporting earnings, let alone large positions! Well, X reports earnings on Tuesday, April 26th and I would like to be out of all X positions by this time. This morning I sold an additional Call on X, a Naked Call. I sold 50 contracts of the 4/22/16 $17 Calls and received $.80 for a total of $4000. Here’s the sell order and below I’ll explain why I sold this Call.
Sell to Open 50 4/11/16 $17 C @ $.80 (+$4000)
Why did I sell these Calls? As you know I own the stock at $16.85 and sold a Covered Call with the $18 Strike Price expiring this Friday. Even though X has been moving nicely, I don’t think it will hit $18 before this Friday. If it does not hit $18, at that point I will own 5000 shares of X as a lone position because the Calls will expire. This is what I feel is going to happen. Today I decided to sell a $17 Call for the following Friday which is the 22nd of April, 4 days before earnings. I believe by the 22nd X has a good chance to be above the price of $17. If I am right, I will get assigned and be out of all X positions with a real nice profit going into earnings. I went with the lower Strike Price of $17 because I want to get assigned. I got a very good premium and if I get assigned I’ll make an additional $.15 on the stock sale. If it happens like this I will be a very happy man. If the stock takes a big dip before the $17 Expiration Date, at least I get to keep a real nice premium of $4000.
This week I’ll have to watch the price of X. If it gets up to the $18 area I’ll have to buy another 1000 shares, because if I’m assigned on my Covered Call this coming Friday I must have my $17 Call covered for the the following Friday April 22nd. I really don’t want to get assigned this coming Friday! This would be the big monkey wrench in my plan.
As I write this post the price of X is up on a market up day. It’s at $17.15. I will watch is closely all week. I give this Naked Call a Risk Factor of 3. It is a Naked Call, but I have some breathing room before the stock approaches my Strike Price of $18 on my Covered Call.
Please email me if you have any questions on this move. It will all be over in 2 weeks and I want this $4000 premium on todays Naked Call!
Steve
The Options Coach