At the close, I mean with 30 seconds left in the trading day, I made 2 trades. The 1st one was a Call on my 1000 shares of Facebook (FB). This is the last trading day of April and Monday will be May 2nd. Traditionally May is not a good month for the stocks. I do not advocate making trading or investment decisions on the time of year but this week I tried to sell my FB shares at $120 and did not get executed. With the stock at $117.50 I decided to collect a premium with the Strike Price of $120. Many books call this “selling stock and getting paid for it.” Who know what Monday will bring with the “May tradition”. If FB goes down I keep my premium. If it goes above $120, I keep my premium and sell at $120, the price I was looking for earlier in the week. I sold 10 contracts of the 5/6/16 $120 Call for a $.60 premium. On my 1000 shares that’s $600. This is a Covered Call with a previously owned stock so I give this trade a Risk Factor of 1. Here’s the sell order:
Sell 10 FB 5/6/16 $120 C @ $.60 (+$600)
My 2nd trade at the close involved U.S. Steel (X). Earlier in the week I sold 100 Naked Calls contracts on X with the Strike Price of $19. 100 Naked Calls represents 10,000 shares. With the stock moving above and below the $19 mark all day, a few hours ago I decided to cover half my position by buying 5000 shares when it fell down to $18.70. With an hour to the close, X was well above my $19 Strike in the $19.40 area. As we were approaching the close the stock come down to the $19.10 area. With 30 seconds left I decided to buy the other 5000 shares and I got executed at $19.11. Now I was completely covered with 10,000 shares at an average price of $18.90 (5000 shares at $18.70 and 5000 shares at $19.11). It looks like I’ll get assigned at the Strike Price of $19 so I’ll make $.10 on the stock sale of the 10,000 shares for a profit of $1000. Plus the premium I collected on the sale of the Call which is $2500. I will go over this in my week ending results. I am very happy the way this worked out.
If you have any questions on this trade and my adjustment trades please send me an email.
Have a great weekend!
Steve
The Options Coach