On 8/8/17 I bought 1000 shares of Weight Watchers (WTW) at $44.50. The stock moved and I sold a $49 Call for a premium of 60¢ for $600. This Call was to expire this coming Friday (4 days). As you know I’ve been in and out of WTW the last few weeks and doing very well with the stock flying after earnings. However, today I changed my immediate outlook. I’m not saying WTW cannot go any higher, but being up 4 and a half bucks on the stock in one week, I decided to take profit instead of risking giving back on a possible pullback. This morning I was reading some reports, looking at the candlestick chart and looking at the RSI. The weekly RSI is in a severely overbought position. After such a great run I decided to take the profit and move on. When considering the sale of my stock I knew I had to deal with the Call I had sold. I had an option that said I had to deliver my stock at $49 this coming Friday. I looked at the premium and I was able to get out for 80¢ or $800. If I bought back my option I would be free to sell my stock.
The Bottom Line: I sold my Call for $600 and I bought it back at $800. On the Call I lost $200. With the stock, I bought at $44.50 and today I sold at $49. On the 1000 shares the profit is $4500.
You might ask, why did I sell for $49 today when I had a Call which would sell the stock on Friday for $49 without buying back the Call? The answer is, after looking at the weekly RSI I got spooked. I’m afraid the stock could possibly drop before this Friday. Whether the stock drops this week or not, I think we will get a pullback. If we get that pullback it could drop to the low 40’s. I felt the best move was to take the small loss on the option and lock in the bigger profit on the stock.
Buy 1000 Shares WTW @ $44.50
Sell 1000 Shares WTW @ $49.00
Profit +$4500
Sell to Open 10 WTW 8/18/17 $49.00 C @ 60¢ (+$600)
Buy to Close 10 WTW 8/18/17 $49.00 C @ 80¢ (-$800)
Loss -$200
Total profit on this Covered Call is +$4300
Yesterday I also bought another 1000 shares of WTW at $48.40. I was trying to get a little more on the stock before i sold a Call on this 1000 shares. Along with selling the shares above I also sold these shares to completely get out of WTW. These shares I also sold at $49 for a 60¢ per share gain for a $600 profit.
Buy 1000 Shares WTW @ $48.40
Sell 1000 Shares WTW @ $49.00
Profit +$600
Steve
The Options Coach
Great move, look at that stock tumble!