Yesterday I sold 50 contracts of AK Steel (AKS) $4.50 Calls. The stock has been moving nicely, in fact all stocks have been moving nicely! Today AKS is up 4.48%. With the market in recovery mode from the Brexit and AKS at $4.40 and raising, I decided to cover my AKS $4.50 Call. I just bought 5000 shares of the stock at $4.40. I would like to see the market to continue to move and AKS go above the $4.50 Strike Price and I get assigned on Friday. Now that I’m covered I don’t have to watch it every second the market’s open. When I sold the Naked Call I gave that trade a Risk Factor of 5. Now that I’m covered I give this Covered Call a Risk Factor of 2. I give it a 2, and not a 1, because I only bought the shares to cover the Call. I really don’t want to own the stock and there’s always a chance for the stock to go down. If I previously owned the stock, I would have given the trade a Risk Factor of 1 because I owned the stock anyway. So if the stock went down it would have went down whether I sold the Call or not. That Call would have been a low risk trade on previously own stock.
Buy 5000 shares AKS @ $4.40
I hope everyone understands this move and how I’m now protected. Sometimes I like to stay Naked and sometimes I like to cover my Calls. If you have any questions on this, please email me.
Steve
The Options Coach