Earlier in the week I wrote a post on my use of “Buy to Close.” Today, with my last trade and the explanation, I’ll add to the reasons I use the position ending move.
At the end of last week I sold 2 Netflix (NFLX) Calls on my 200 shares of NFLX. With the stock at $402.50 I sold (2) $412.50 Calls to expire tomorrow. Since I sold that Call the stock has been up as high as $418. At this point I thought for sure I’d get assigned at my Strike of $412.50 and have another Opportunity Lost. Well, today the top tech analyst from UBS Bank changed his rating from buy to neutral. He is still very high on NFLX but he feels the stock will be running out of gas in the next 2 years. With this downgrade he also raised his price target from $375 to $425. I’m looking at his report and thinking it not much of a downgrade!
Not only do I still believe NFLX still has wind in it’s sail, but they announce earnings this coming Monday. With the increase in their subscription fees I think their earnings will be good.
Today with the stock down because of the UBS downgrade, I decided to lock in profit from my sale of the Call and do a “Buy to Close.” Not only did I lock in profit but I got out of my obligation to deliver the 200 shares of stock at $412.50. When it was moving down I entered the “Buy to Close” offering to pay a $2.50 premium to close the deal. When the stock was at $402.50 I received a $5 premium for $1000 on the “Sell to Open” and when the stock came down to the $410 area today I was just filled on my “Buy to Close” for $2.50, a total of $500.
I sold for $1000 and bought to close for $500 for a $500 locked in profit. Now if the stock bounces back and goes above $412.50 I do not have to deliver the stock. I plan on holding the stock through earnings on Monday and hopefully the stock moves much higher.
7/6/18 – Sell to Open 2 NFLX 7/13/18 $412.50 C @ $5.00 (+$1000)
7/12/18 -Buy to Close 2 NFLX 7/13/18 $412.50 C @ $2.50 (-$500)
Profit +$500
As I write the stock is back up to $412.50, and now that I’m out of the option, I hope it keeps going up.
Any questions on this trade send me an email.
Steve
The Options Coach