When it comes to Tyson Foods (TSN), I’m one happy trader!
For you Main Street beats Wall Street readers, you know I had a Short position in TSN. That’s the stock not an option. If you’re not familiar with this trade please read Results Week Ending 3/10/17. I sold 30 contracts of a TSN Naked Call last week. When Expiration Day came around my Call was In-the-Money. I had to deliver the stock at $62.50 but the stock closed at $63.55. Instead of making a move with the option before the close of the market on Friday, which I explained in my report, I decided to let my broker deliver the stock (which I didn’t own). For you Grasshoppers, this can get complicated, but at this point I was Short 3000 shares of TSN. Please read my page on “Long & Short Positions.” It’s very important you know exactly how they work.
The Bottom Line: My broker lent me the 3000 shares at $63.55 and deliver them to my Call buyer for $62.50. At this point my account was down $1.05 per share (-$3150). My broker delivered the shares, so at some point I have to buy the 3000 shares to return them to them. My goal is to buy the shares for $62.50 or lower so I don’t lose money. If the stock comes down my Short position increases in value. I bought at $63.55 to sell at $62.50 to my Call buyer. I am losing $3150. If the stock comes back down to $62.50 my Short position would gain value and I would be even. Well, I just bought the stock at $62.55 and I lost 5¢ ($150), no big deal!. And this deal over! However, with the stock closing In-the-Money the trade got extended a little then I wanted. The result is I make the $1500 premium on the option and I lost $150 on the stock I had to Short. I am very Happy! I hope this makes sense. If not send me an email. It’s very important to understand.
I reported the $1500 gain last week so this week I’m only reporting the $150 loss.
Loss -$150
I expect to get some emails on this. Send them on out.
Steve
The Options Coach