On 10/11/16 I bought 5000 shares of Yelp at $40.86. At the time the stock was on a crazy run so I decided to hop on board. As soon as I did the stock reversed! The stock went into a free fall all the way down to the low 30’s until their earnings report came out. The stock had a big jump but stopped in the high 30’s. In this 3 week period I didn’t have a chance to sell Calls because the stock was much below my purchase price and I wasn’t able to get a decent premium. Today the stock and the entire NASDAQ is on a run and Yelp is up $1.90. With the stock at $37.70 I was able to get a nice premium for the $39.50 Calls expiring this Friday. I got $.25 ($1250) on 50 contracts. This is not the best situation because I bought the stock at $40.86 and sold the Call with the Strike Price of $39.50. I hope I don’t get assigned at my Strike because I’d lose $1.36 on the stock. The bottom line is I hope the stock stays below $39.50. If it gets up there before this Friday I’ll make some kind of counter move. Let’s watch and see what happens. I give this trade a Risk Factor of 2. It is a Call sold on previously owned stock but if I get assigned I’ll lose money on the stock. If I sold the Call at or above my purchase price the Risk Factor would be a 1. If I went for the $41 Call I wouldn’t be able to get a premium of over a few cents. Here’s the order:
Sell to Open 50 YELP 11/18/16 $39.50 C @ $.25 (+$1250)
As I was writing Yelp came down a little helping my trade. I sold the Call with the stock at $37.70 and the stock is now at $37.15.
Steve
The Options Coach