Yesterday I bought 500 shares of Cree (CREE) on an upgrade by J P Morgan. I bought the shares at $57.70 per share. I bought the shares with the intention of selling 5 Calls later in the day. The stock went up a little after I bought but I didn’t see any options I liked to get my Call sold. Today with the market up and Cree up $1.50 I just got a Call sold.
I sold 5 CREE 3/29/19 $60 Calls for a premium of 80¢. This option will expire next Friday and the total premium on the 500 shares is $400. I feel with the upgrade Cree will continue up. I sold the Call to pocket the $400 in the case it doesn’t continue moving up. And I’ll have a $400 hedge if the stock goes down. If the stock gets above $60 by my Expiration Date I’ll get assigned. My profit on the stock will be $1150 plus I’ll keep the $400 premium. That would be a total profit of $1550. If the stock doesn’t go above $60 by next Friday, I keep the $400 premium and I’ll keep my 500 shares of Cree. Since Cree is a hot stock with an “outperform” rating, I will not mind keeping the stock. Here’s the sell order:
Sell to Open 5 CREE 3/29/19 $60 C @ 80¢ (+$400)
This Call expires in a little over a week. Receiving an 80¢ premium on a stock I bought for $57.70 is about a 1.4% Rate of Return in a week. This trade fits into my “1 Week/1%” strategy.
This trade is a Covered Call on a very good stock so it gets a Risk Factor 1.
If I get assigned on the stock my profit will be $1550. In this case my Rate of Return will be 5.3%. Not a bad 1 week trade!
Steve
The Options Coach