Back on May 28th I sold a Call on Advanced Micro Devices (AMD). This morning with the stock down I did a “Buy to Close.”
I own 1000 shares of AMD and I sold a 10 contract, $35 Call to expire on 1/17/20. I received a premium of $2.65. When I sold the Call the stock was at $28.75. Today with the stock down at $29.90 the premium was $2.15. The stock is actually higher than when I sold the Call, but since I sold the Call back on May 28th there has been some Time Decay. This is what I love about selling Calls, Time Decay is on your side. When I sold the Call I received a premium of $2.65 for $2650. Today I did a “Buy to Close” for a premium of $2.15. This means I gave back $2150 of the $2650. Since I made this trade to close the position I locked in a profit of $500. You must understand Short Positions.
5/28/19 – Sell to Open 10 AMD 1/17/20 $35.00 C @ $2.65 (+$2650)
8/27/19 – Buy to Close 10 AMD 1/17/20 $35.00 C @ $2.15 (-$2150)
Profit +$500
This may not sound like much of a profit but in today’s market environment I love to lock in money. The volatility is crazy. The Call I sold still had 5 months until expiration. So much can happen in that time. I decided to lock in $500 and watch to see what happens. If the stock moves up I can sell another Call for another premium. Also if Trump and China work on a trade deal the market will get a pop. If the stock goes above $35, which was my Strike Price, I no longer have to deliver the 1000 shares. Like I said, I left $2150 on the table and it might not seem like a great deal now, but what ever happens, I still have $500 locked in!
What really makes this day special is Trump has been quiet. I feel he might have learned a little from the market’s big drops as a result of his tweets. Let’s hope so!
Steve
The Options Coach