As Main Street beats Wall Street readers know I own 10,000 shares of U.S. Steel (X). U.S. Steel and all the steel stocks have been some of the most volatile stocks since Trump won the election. Trump’s promise of investing a trillion dollars into the country’s infrastructure has the steel sector’s, along with construction equipment & supplies sector’s bullish investors running wild. These stock’s movements have me a little concerned because of the size of my position in X. I have a new plan for 2017 and sticking to this plan, holding 10,000 shares of any stock will not keep me feeling comfortable. My 2017 plan, which I’ll call my “2017 Challenge” will be sent out in a few days. Having said that, I’ll be trying to reduce the size of my X position. If you look at my “Active Trades/Current Positions” you will see I’m in that position at $35.73, as I write the stock is at $35.
Yesterday I sold 100 contracts of X with the Strike Price of $36.50. I received a premium of 60¢ ($6000). A few minutes later with the stock in a free fall the premium was down to 30¢. I bought my way out of that position for a 30¢ ($3000) profit. I was hoping for a rebound and sell another Call but that didn’t happen because the stock continued down.
Today is another day and X is up almost $1.50. I just took advantage of the pop and just sold more Calls. Today I played it a little different. Sticking with my plan to reduce the size of this stock holding I sold (2) 50 contract Calls; I put in 2 orders. 1 order was with the Strike Price of $36 and the other with the Strike Price of $36.50. Both expiring this coming Friday. My $36 Call came with a 40¢ premium for a total of $2000 and the $36.50 a premium of 35¢ for $1750. I did the $36 Call for the higher premium in the hopes of getting assigned. If I get assigned I sell the 5000 shares at $36 making 27¢ and reducing my position to 5000 shares which I’m more comfortable with. If the stock goes above my other Strike Price of $36.60 I’ll also get assigned on those shares making 77¢, which will also be fine. I would like to get assigned on my $36 Calls and keep my other shares to sell more Call next week. The stock will have to close between $36 and $36.50 at the market close this Friday. Both these Call are on previously owned stock so it’s a Covered Call with a Risk Factor of 1. Here are the 2 orders for the Short sale of the option:
Sell to Open 50 X 1/13 17 $36 C @ 40¢ (+$2000)
&
Sell to Open 50 X 1/13/17 $36.50 C @ 35¢ (+$1750)
Total premium $3750
Let’s watch and see how this plays out. If you have any questions on my strategy please send me an email.
Watch for my “2017 Challenge.”
Steve
The Options Coach