On Monday I sold 2 Netflix (NFLX) Calls with a $5 premium for $1000. Yesterday the stock went up above my Strike Price. I really didn’t want to get assigned which I mentioned in the post reporting that trade. Today the stock is down and my $5 premium was down to $3.70. I feel NFLX isn’t gonna go down much more so I decided to do a “Buy to Close” and get out of the position with a little profit. The key work here is PROFIT! By getting out with my “Buy to Close” I locked in a profit of $260 on a 2 day trade. May not sound like much but you Grasshoppers will learn, if you get out of a trade with a profit, no matter how small, it’s still a profit. And to me profit means I didn’t lose money. It’s very easy to lose money in this game, and as long as I’m grabbing profit I’m not losing money.
I sold the Call for a $1000 premium and I did a “Buy to Close” for $740. This gave me a $260 profit. For anyone who doesn’t understand how this works you must send me an email. You must understand Short Positions. Selling a Call is a Short Position.
10/8/18 – Sell to Open 2 NFLX 10/12/18 $352.50 C @ $5 (+$1000)
10/10/18 – Buy to Close 2 NFLX 10/12/18 $352.50 C @ $3.70 (-$740.00)
Profit +$260
Now the question is, why did I do this “Buy to Close” and not hold 3 more days for the entire $1000 premium? #1, I saw an opportunity to lock in a profit. Also, I feel NFLX is at it’s bottom. I don’t feel it will go down much lower. The market is having trouble with the talk of raising rates but hopefully it doesn’t cause the market to go down further. Having said that, I think NFLX has a chance to go above my Strike Price by the end of the week. If it does I am no longer obligated to deliver my 200 shares of NFLX because I bought my way out of the position. Now that I’m out of my Call, I hope NFLX goes to $370 by Friday. If it does I get the stock gain because I don’t have to deliver at $352.50. Let’s watch and see what happens.
Steve
The Options Coach