About 3 weeks ago on 9/21/16 I sold 100 contracts of the U. S. Steel (X) 1/20/17 $21Naked Call LEAP. I received a premium of $1.20 for $12,000. To pocket all of the $12,000 I would have to hold the Call until expiration, January 20th. Today with the market continuing to move south, X is down another $1. With 100 days left to my LEAP the premium was down to $.75. It would cost my $7500 to get out of the 100 contract deal. Remember this is a short position. If this was a long position, I would have bought first for $7500 then sold for $12,000. Being a short position, I sold before I bought. I sold for $12,000 and I can buy for $7500. To me this is a great opportunity to pocket $4500 for a 3 week investment. This is over a 2.5% Rate of Return in 3 weeks. So I pulled the trigger to get some money in my mattress. This Naked Call deal is over! Here’s the sell and buy orders:
Sell to Open 100 X 1/20/17 $21 C @ $1.20 (+$12,000)
Buy to Close 100 X 1/20/17 $21 C @ $.75 (-$7500)
Profit +$4500
With the market moving down lately my stock positions are also down. This is another reason why I got out of this position. With my stocks down it makes it difficult to sell more Calls and get good premiums. I want to have a Strike Price where I will not get assigned, losing money on the stock. Because my stocks are down a little I might have to go out a bit and the premiums will be lower. Getting out of this 100 contract Naked position gives me a decent amount of margin availability to keep the money flowing while I wait for my stocks to recover. When this down trend is over there will be some nice buying opportunities.
If you have any questions on my strategy to pocket money and free up margin please email me.
Steve
The Options Coach