Monday morning was not a good start to the week. The market was down and my 2 holdings were also down. I’m holding 10,000 shares of U.S. Steel which I carried over from 2016 and I also have 3000 shares of Micron which I bought on 1/4/17. Since the beginning of the year I’ve been selling Calls on these shares bringing in nice premiums. Monday I wanted too do the same but the market didn’t cooperate. Tuesday was a different day! The market was up, my stocks were up, and I was able to get some work done. I sold Calls on both stocks and it worked out great for me to finish up the 1st month of 2017 with some nice gains. Selling Covered Calls every week is not my strategy but sometimes you have to make adjustments in your plans to keep money flowing in. I’m in U.S. Steel at $35.73 and it’s been hanging around the $33 to $34 area so I keep selling Covered Calls until I get assigned on my shares. Micron I’m in at $22.45 and that’s been around the $22 area so I’m doing the same. Let’s take a look at what trades I made, what I was hoping would happen, what actually happened and what the outcome of my moves were. First let’s look at U.S. Steel.
U.S. Steel
I carried U.S. Steel (X) over from 2016. To start the new year I really don’t want to hold 10,000 shares of any stock with my strategy for 2017 which I call my “2017 Challenge.” As I mentioned in past post I’ll talk about that strategy as soon as I’m out of half of that position. I don’t mind holding 5000 shares of X but 10,000 is too risky for me. You must understand, this is a very volatile stock under Trump and every 10¢ the stock moves, my account moves $1000 in either direction! You really need a strong stomach the way the stock has been moving. Lucky for me it’s working out so far. We just finished the 1st four weeks of the year and with X alone I brought in $14,250 in premiums. Go to my Trade History 2017 and add it up. Every week I’ve been selling 100 contract Calls but this week I started with (2) 50 contract Call to try and get assigned on 5000 shares. I went with 50 contracts with the Strike Price of $36 because I’m in the stock at $35.73 and the other 50 contracts at $36.50 to try an keep 5000 shares. All Calls this year were 1 week Calls. Below are this weeks 2 Calls:
Sell to Open 50 X 1/27/17 $36 C @ 35¢ (+$1750)
&
Sell to Open 50 1/27/17 $36.50 C @ 25¢ (+$1250)
Both Calls expired without assignment because the stock never went above the $36 Strike Price. As I said I wanted to get assigned on the $36 Calls but it didn’t happen so I end the week still owning the 10,000 shares. The good news is I keep both the premiums. $36 Calls, Profit +$1750 and the $36.50 Calls, Profit +$1250. This money is in my mattress!
Micron
Micron worked out even better for me. I was assigned on my shares! If you read my strategy I really don’t like owning stock. I might end up with a substantial Opportunity Lost once in a while and I really don’t care. If I made money, I’m happy. This game is very difficult to consistently make money, so my philosophy is if I didn’t lose money I’m happy. Period! Let’s take a look at this weeks trade, plus the entire result since I bought the stock on 1/4/17. This week I sold another Covered Call because I haven’t been assigned since I bought the stock on 1/4/17. For the first 2 weeks I sold the $22.50 Calls and wasn’t assigned. the 3rd week I did’t get to sell a Call because the stock was in a dip and I couldn’t get a good premium without the risk of getting assigned at a price below my entry price of $22.45. This week the stock came back up and before I sold the Call the stock was above the Strike Price I’ve been using, $22.50. Tuesday the stock was up near $23 so I sold the $23 Call. This gave me a nice premium plus the hopes of getting assigned at the higher price to make an extra 50¢ on the stock. Here’s the sell order for 30 contracts:
Sell to Open 30 MU 1/27/17 $23 C @ 25¢ (+$900)
Friday, Expiration Day, Micron closed at $23.97. For me this worked out great. Exactly the result I look for in my strategy. I was assigned at $23 making 55¢ on the stock for a profit of $1650 on the 3000 shares; plus I keep the $900 premium. This would not make some stock market gurus happy because I had a 97¢ Opportunity Lost. If I never sold the Calls since I bought the stock I would have made $2910 (97¢ X the 3000 shares) on the sale of the stock. I’m in the options business so I’ll take the Opportunity Lost. Who knows, if I never sold the Calls the stock might have gone down to $21. At least when I sell Calls I get a little insurance (the premium) if the stock goes down. My strategy might not be for everyone but I’m making money and I’m happy. If you look at my “Trade History 2017” you will see in the 3 weeks I sold Calls on MU my total premiums are $3000 plus the $1650 on the stock sale for a 1 month total of $4650. I’m out of the stock and this deal is over! Let the gurus disagree. On the 3000 shares I invested $67,350 and my total profit is $4650 for a gain of 6.9% in one month. If you consider that I bought the stock on margin my Rate of Return is 13.8%. Not bad! Take a look at the stock buy and assignment orders.
1/4/17 Buy 3000 shares MU @ $22.45
1/27/17 Assigned on 3000 shares MU @ $23
Profit +$1650
Profit on option +$900
This week I start with 10,000 shares of U.S. Steel. I am very worried because they announce earnings on Tuesday. I don’t like being in this position but there’s nothing I can do. The premiums are good because of the Tuesday news so I hope the stock goes up on Monday and I get a very good premium for insurance in the case the stock goes down after earnings. Let’s watch and see what happens. The good thing is I already brought in over $14,000 in premiums to also go against any pull back in the stock. I’m hoping even if the earnings don’t hit expectations the stock doesn’t go down. Many investors are waiting for Trumps $1 trillion infrastructure plan to get started and the consensus is U.S. Steel should be a big part of that.
Total Weekly Gain +$5550
I would like to welcome the new readers, thank you for joining us. There is a lot of money to be made but not without risk so keep studying. Any questions send me an email. Have a great weekend!
Steve
The Options Coach