For the last few months I’ve only had stock positions in U.S. Steel, Yelp, Micron and Gopro. The only stock not involved in this weeks results is Gopro. Honestly, I wish it was because I’m in a bad place with Gopro and I think it will take a while before I’m out with a profit, but that story is for another weekly result report. I have a long story with some of this weeks trades so let’s get to it.
This week’s report involves U.S. Steel (X), Yelp (YELP) and Micron (MU). Let’s start with the long winded story involving X.
U.S. Steel
Way back on 9/2/16 I bought 10,000 shares of X for $19.50. With the stock taking a few point dip, on 9/19/16 I sold 100 contracts of the 11/18/16 $20 Call to stop the bleeding of the stock falling. This Call brought in a premium of $.70 for $7000. The stock bounced back and I was looking good. Then election day approached. The day before I sold all my positions in fear of a big pull back on the result. I did not post these trades because I was getting out temporarily only to get back in these position the day of, or the day after the election. When I sold all my stock I sold X at $20.68. My strategy worked great except for X. All the stock went down except X. X went up close to $4. This caused a big problem because I was short 100 Naked contract of the X options. All the other stock I bought back as planned but X was too high at this point. With Trump announcing his infrastructure plan all steel and construction stocks went up big. On 11/11/16 I bought back the 10,000 shares to stop the bleeding of my short Calls. I bought back the stock at $25.77. To cut this part of the story short, I sold the 10,000 shares this Friday for $28.57. Before we get into the disaster of my 100 contract option, let’s look at the result of the stock. The first time I bought the stock at $19.50 and sold for $20.68. This profit was $11,800. When I bought back the stock after the election I paid $25.77 and sold for $28.57. This was a profit of $28,000. The total stock profit was the $11,800 plus the $28,000 for a total profit of $39,800. This is great right! WRONG! Now I have to tell the story of the option.
After I bought the stock for the second time the stock continued to go up. I had a Covered Call and not losing money but I had the big jump in the stock after the election while I was Naked. I decided to try to capture some of that money back by buy back my Calls with a “Buy to Close” on my option. Now if the stock continued up I would realize the gain because I no longer had a Call on my Shares. I put in an order to “Buy to Close” 100 contracts for the wapping amount $6.40. This would be a big loss on the option but I wanted to cut my losses and start to make money on a very hot stock. This story goes from bad to worse. The stock continued up but I was only executed on 50 contracts and I still had 50 short contracts at the close of the day. Now I owned 10,000 shares of the stock but only had 50 contracts sold against them. The next day the stock opened up another $1. To cut this part of the story a little short, I ended up selling the remaining 50 contracts on expiration day for $8.60. I bought back the first 50 contracts at $6.40 and the next 50 contracts at $8.60 for an average of $7.50. Remember I sold the 100 contracts for $.70. This was a huge loss on the option! You can do the math, but if you want to take my word for it, the total loss was $68,000. This loss and the gain on the stock gave me a total loss of $28,200.
Trying to understand this is probably not for Grasshoppers. The bottom line on this entire deal is making this a Naked Call with the sale of the stock for the election caused a tremendous loss. This is a great lesson on naked Calls. It’s still my favorite strategy but this deal let’s you know how dangerous they can be. If you have any questions on this please send me an email.
Total Loss -$28,200
Micron
On 10/3/16 I bought 5000 shares of MU at $17.78. A few week ago I sold a 50 contract Call which expired and I wasn’t assigned. On 11/7/16 I sold a second 50 contract Call. I sold 50 contracts of the 11/18/16 $18 Call for the premium of $.24 for $1200. The stock moved up nicely and the Call expired this Friday and I was assigned on my shares. I was assigned at $18 and my profit on the 5000 shares was $.22 for $1100.
Total Profit +$1100
The Call expired so I keep the entire premium of $1200.
Total Profit +$1200
Yelp
On 11/15/16 I sold a Call on previously owned shares of Yelp. I own 5000 shares. I sold 50 contracts of the 11/18/16 $39.50 Call for a premium of $.25 for $1250. This was a 3 day Call. The stock didn’t hit the Strike Price of $39.50 so a wasn’t assigned but I keep the premium of $1250. And I keep the stock.
Total Profit +$1250
Day Trading
I do not like to Day Trade but I did a bit in the last week or 2. It started with getting out of all my stock before the election and getting back in. It wasn’t a day trade but I considered it one because I knew I was getting back in plus I didn’t want to write a report on each trade when I knew I was getting back in the next day. The only one that didn’t work was U.S. Steel. Micron, Yelp and Gopro I got back in at a lower price which made me some money. After the election and being in a little bit of a panic I started day trading to try to recoup some money in the volatile market to make up for the money I knew I was losing on X. I did numerous trades on all my position and it worked out OK. I recovered $4500. I couldn’t log all the trade because I was trading by the minute. I am very happy I’m out of some of these positions and now I can get back into my winning ways.
Total Profit +$4500
While I’m having a great year this was not a fun few weeks. I’m glad it looks like things will get back to normal and you will start to see my winning trades again. I decided to write off U.S. Steel with that loss. I could have done a Roll-Out to hang on and turn it into a profit but I decided capitulation was the way to go and get the money back with my winning strategy I’ve been doing great with.
Total Weekly Loss -$20,150
I don’t like to post this loss but it will be a nice write-off against some of this year’s gains.
I hope you had a great weekend!
Steve
The Options Coach