The week ended again bringing in some nice premiums and the money is in my mattress. However, I’m not happy with the positions I’m holding now. These positions are not moving the way I hoped and they’re hurting my account a little. I’ll go over one at a time and you’ll understand my concern. You’ll also see how, with the market, things don’t always more the way you had hoped. I had four trades completed this week and we’ll talk about each one starting with Tyson Foods (TSN). Explaining this trade might make this week ending report a little long. Sorry!
About a month ago TSN came out with a less than favorable earnings report. On Feb 6th, following the report the stock dropped $4. This week a report hit the news that they found Bird Flu at a Tennessee farm where Tyson gets much of it’s poultry. At this point I sold a 1 week Naked Call because I felt the stock was going down, which it did. I was looking good until Friday, Expiration Day, when the market was up on a great employment number. Always remember, news moves the market. At the open on Friday TSN was still below my Strike Price and I was hoping it would stay there so my 30 contract Call would expire and the deal would be over. Well, the stock started to move with the market and went above my Strike Price. I had a contract to deliver 3000 shares at the Strike of $62.50 and it was above that so I had a decision to make. As the trading day was coming to the end the stock was up to $63.50. Here are the 3 options I was contemplating:
- I could do a “Buy to Close” to end the deal with a $1500 loss. Considering the loss on the stock ($3000) and the gain of the $1500 premium.
- I could do a “Roll Out” with a “Buying to Close” and sell another Call 2 or 3 weeks out with a higher Strike Price. The new Call’s premium would have to be more than what I pay to buy to close to make this maneuver worth it.
3. I could deliver the stock, which I don’t own, at my Strike Price of $62.50.
I decided to deliver the stock and keep the $1500 premium. The way this works is my broker buys the stock at the going price, which was $63.55 at the close. And sell it to my option buyer at the Strike Price of $62.50. Now I have to return the stock to my broker, so I’m Short 3000 shares of TSN. I’m down $1.05 (on 3000 shares) when I deliver of the stock because I bought the stock at the market for $63.55 and sold, because of my contract, for $62.50. I did this because I still feel TSN will go down and hopefully it happens on Monday. At this point I brought in a $1500 premium and I’m down $3150. The $1500 is in my mattress but the $3150 is not a realized loss yet because I’m still in the position, I’m Short 3000 shares of TSN. If the stock goes down I’ll make that back. If it goes up I have another decision to make. Sometimes it’s better to just take the loss. Let’s see what Monday brings!
Being in this game isn’t always a smooth highway. Sometimes you hit a rough road and you have to negotiate your way around. It’s all part of the game. You must have a strong stomach! And know your risk tolerance.
Here’s the option orders from this trade:
Sell to Open 30 TSN 3/10/17 $62.50 C @ 50¢ (+$1500)
Expired 30 TSN 3/10/17 $62.50 C
Profit +$1500
I had 2 trades that I went in and out of in a few days grabbing a few dollars. They involved Sarepta Therapeutics and Micron. Below are the trades. If you want to read about the trades go to the links. The Sarepta trade’s post was called Out of Sarepta Therapeutics With “But to Close”
Sell to Open 20 SRPT 3/10/17 $36 C @ 50¢ (+$1000)
Buy to Close 20 SRPT 3/10/17 $36 C @ 30¢ (-$600)
Profit +$400
The Micron trade’s post was Out of Micron.
Sell to Open 20 MU 3/10/17 $26 C @ 25¢ (+$500)
Buy to Close 20 MU 3/10/17 $26C @ 10¢ (-$200)
Profit +$300
For my last trade I sold a Covered Call on Dick’s Sporting Goods (DKS). I own 1000 shares and sold a 1 month Call bringing in a $1.60 Premium for $1600. The stock took a drop on the earnings report and with over a week left to expiration the premium was down to 10¢. I figured, why keep this trade going another 10 days when I could do a “Buy to Close” and keep $1500 of the $1600 premium. I bought the option for the 10¢ and this trade was over. I still own the 1000 shares and waiting for it tonged a little higher before I sell another 1 month Call. The post exiting this trade is called “Buy to Close” my Dick’s Sporting Goods Calls. Here’s the orders:
Sell to Open 10 DKS 3/17/17 $52.50 C @ $1.60 (+$1600)
Buy to Close 10 DKS 3/17/17 $52.50 C @ 10¢ (-$100)
Profit +$1500
I’m still in my U.S. Steel (X) stock position which I’m not very happy with. The stock is down $6 dollars from where I bought and I have not been able to sell a Call with a decent premium so it’s been idle. I’m hoping I get a little bounce this week or I have a decision to make. However, I did just get a nice surprise! I still have 5000 shares and the stock pays a dividend. While looking at my account doing this report I noticed the dividend hit my account, a nice $500. Not bad!
U.S. Steel Dividend +$500
Including this dividend I had another nice week of “locked in” money.
Total Weekly Gain +$$4200
Even with my U.S. Steel position idle I was still able to satisfy my “2017 Challenge” of $3000 a week. Let’s hope U.S. Steel comes up a little this week and Tyson Foods comes down so I can get out of the Short position.
The positions I mentioned in the beginning of this report I’m not happy with are 5000 share of X, down $6 from where I bought. 1000 shares of DKS, down $3 and I’m short 3000 shares of TSN.
Have a great weekend!
Steve
The Options Coach