Last week was a crazy week for a few reasons. #1, it was the largest amount of money I ever put in my mattress in a week ending result, $21,100. #2, while stuffing my mattress with this amount of money I put myself in a very precarious situation. With Gopro (GRPO) at a high price, I sold all my stock leaving me Naked on four 50 contract Calls. At the time of the sale of the stock I felt the market was going to have a little correction and GPRO would go down along with the market. You must always remember, picking direction of the market or a stock is the most difficult thing to do in this business. If it was easy, we would all be millionaires.
Friday the market was down 131 and today the market opened down and it’s down 130 as I write. With this little pullback, GPRO is down but not as much as I would like. However, with GPRO down about $.40 I was able to cover two out of my four Naked Calls. The Naked Calls I have are a 9/30/16 $16 Call, a 10/7/16 $17 Call, a 10/14/16 $17 Call and a LEAP, a 1/20/17 $15 Call. At the moment I’m not going to worry about my LEAP. I have a lot of time before that becomes a problem. The other three Calls are part of my “Triple Play Hedge.” Today I was able to cover 2 of the 3 Calls. I just bought 10,000 shares of GPRO at $16.75. These shares will cover my two $17 Calls. Now the only near-term problem I have is the $16 Call expiring this coming Friday. If the stock drops below the $16 mark, I’ll but another 5000 shares to cover this Call. At this point I wouldn’t have a Triple Play Hedge, I would have three separate Covered Call, which would be fine with me.
The purpose of a “Triple Play Hedge” is to have one Covered Call and sell two additional Naked Calls to bring in some insurance money in the event the stock drops. If I get the chance to buy the additional 5000 shares, I will not have Naked Calls as insurance, I’ll have all Covered Calls. These are adjustment trades I’m making to prevent myself from losing money and trying to keep all the money I stuffed in my mattress as a result of selling stock because of my direction prediction.
I am very happy being able to cover the two Calls I did. The final $16 Call will be handled as the week moves on. If the stock drops below $16 I buy 5000 shares. If the stock stays above the $16 mark I will probably do a Roll-Out and try to change it to A $17.50 or a $18 Call. Here’s the stock buy order:
Buy 10,000 shares GPRO @ $16.75
Before I bought these shares I was in a position where the risk factor was a 5. These two $17 Calls were In-the-Money Naked Calls. Very dangerous! With the purchase of the 10,000 shares these Calls get moved to a Risk Factor of 1. My $15 LEAP and my $16 Call are still in the Risk Factor 5 category.
Please keep your thinking cap on and email me any questions. I wilt out of this precarious position making money. I hope lol!
Steve
The Options Coach
Fascinating stuff!
Thanks Kel! If you want to get a little further in life you cannot only work. You must have some kind of investment going where your money is also working. Real estate, business, precious metals, stocks, options, get interested in something and master the field.