Yesterday I sold a Call against 100 shares of Netflix (NFLX) I own. The Call expires this coming Friday. The stock was at $373.25 and I sold the $380 Call. NFLX has been on a tear lately and I thought it was time to level off. Today, with earnings season in full swing, the market continues to move up. In fact the S&P 500 is very close to it’s all time high. I felt selling a Call on NFLX, $7 Out-of-the-Money, was safe because I really don’t want to lose my stock to assignment. After I made the trade yesterday the stock continued up, and today also. As I write the NFLX is up another $6.40 to $383.75; it blew right through my $380 Strike Price with 4 days to expiration.
When trading options, the road to success is not always a smooth road, sometimes you hit bumps, dips and detours, you must make adjustments. These road hazards cause you to make moves. These moves I call “Adjustment Trades.”
With NFLX making a big move after I sold my Call I had a decision to make. I could just watch the stock run higher and get assigned; it is a Covered Call so I’m safe from getting in trouble. However, it the stock continues higher I would have to except the Opportunity Lost and be happy with the money I made. Or I could make an Adjustment Trade and try to make more money. Most of the time I’m happy with what I signed up for and except the assignment. What makes this situation a little different is I like NFLX and I don’t want to lose my stock. I feel with some of the other FANG stocks reporting earnings this week it could cause NFLX to run higher.
With this in mind the Adjustment Trade I made was a Rolling move. I rolled my Call up and out. Please read my section on Rolling.
Below are the trades involved in the Roll up and out:
4/22/19 – Sell to Open 1 NFLX 4/26/19 $380.00 C @ $2.50 (+$250)
4/23/19 – Buy to Close 1 NFLX 4/26/19 $380.00 C @ $6.50 (-$650)
4/23/19 – Sell to Open 1 NFLX 5/3/19 $385.00 C @ $7.50 (+$750)
The 1st trade I made yesterday. I sold the 4/26/19 $380 Call for a premium of $250. Today I closed this position doing a “Buy to Close.” To do this it cost my $650. With the stock moving up the premium also moved up. At this point I’m down $400 (+$250 -$650). Then I rolled up and out with a “Sell to Open.” I opened another position with a higher Strike Price and went out on the Expiration Date 1 week. I sold the 5/3/19 $385 Call for a $7.50 premium for $750. At this point I’m up $350 (+$250, -$650 & +$750) in premium and I don’t have to deliver the stock unless it goes above $385. If the stock continues up I’ll have to make another decision. Do I except assignment or do another Roll Out? Only time will tell.
Tomorrow Facebook (FB) reports earnings. The results can move all the FANG stocks.
If you have any questions on Rolling please send me an email.
Steve
The Options Coach