Earlier I wrote that I placed an order to sell my Micron (MU) Calls I owned.
On 7/18/19 I did a Diagonal Bull Call Spread on MU. I used an option I bought to cover a Call I sold. The Call I bought was a 10 contract 6/19/20 $45 Call. When I bought the Call the premium was $7.50, I paid $7500. Today I decided to break up the Diagonal Bull Call Spread and did a “Sell to Close” on the Long Option I owned. I placed the order to sell for a premium of $10.50 earlier this morning, as reported in my last post. I was just filled on this order. I paid $7.50, or $7500 and sold for $10.50 to put $10,500 into my account. That’s a $3000 profit on a $7500 investment for a Rate of Return of 40% in 2 months. This is the power of buying options. If done correctly you can get impressive returns.
7/18/19 – Buy to Open 10 MU 6/19/20 $45.00 C @ $7.50 ($7500)
9/16/19 – Sell to Close 10 MU 6/19/20 $45.00 C @ $10.50 ($10,500)
Profit +$3000
What a great way to start a week! For the readers who really pay attention, you might ask what about the Call I sold in the Diagonal Bull Call Spread to make the Covered Call? It’s now a Naked Call! Well, I still have that Short option I sold. I am obligated to deliver 1000 shares of MU on 1/17/20 if the stock is above the $50 Strike Price. Here’s that Short Option I sold with the Diagonal Bull Call Spread,
Sell to Open 10 MU 1/17/20 $50.00 C @ $3.50
About 10 days ago I bought 500 shares of MU at $49.30 to partially cover my obligation. I bought these shares because I anticipated I’d be selling my Long Call I owned. Now that I did sell the Long Call and bought the 500 shares, I’m still naked on 5 contracts of the Short Call I sold. For Grasshoppers, I know this get complicated. This is all part of being an options trader.
I have until 1/17/20 to worry about the 5 contracts that are Naked. I’ll watch closely and make a decision. As I write the stock is at $49.83. I might end up covering these 5 contracts today. I’ll let you know.
Steve
The Options Coach