I just sold 1000 shares of U.S. Steel (X) which was covering a 10 contract Call.
Last Friday I did a Buy-Write with X. I wanted to sell the Call but I was up in the air whether I wanted to own the stock or not. I sold the $13.50 Call and I ended up buying the stock right At-the-Money, $13.50. I really didn’t want to own the stock but I felt it was dangerous doing a Naked Call on a stock that just came out with a nice earnings report.
I was worried about this position all week, and yesterday the stock dropped down to $12.83. I felt the stock was gonna drop back and it did. I was worried I’d be stuck in the position for a while. Today X is up with the market. I just made a ballsey trade and sold my shares of X at $13.70. Anyone would say I’m crazy selling a stock 20¢ In-the-Money with 1 day til expiration. Well, that’s how much I don’t want to own the stock. I have such little confidence in the stock that I feel it will be below my Strike Price by tomorrow’s close.
11/1/19 – Buy 1000 Shares X @ $13.50
11/7/19 – Sell 1000 Shares X @ $13.70
Profit +$200
If X closes above my Strike Price tomorrow my Call will expire and I’ll have to deliver the stock at $13.50. If this happens my broker will borrow the shares because I don’t own them. At this point I’ll be Short 1000 shares of X. The way I’m looking at this trade is I’d rather plan on going short on the 1000 shares instead of holding. I think the stock will be below my Strike for the close tomorrow. I do not want to get stuck with X at $12. I’d rather go short and hold the short position until it comes down. And make $200 on the sale of the stock today.
Lets watch and see how this plays out tomorrow. Either way, if you are a Grasshopper, this is a dangerous move. If X keeps going up, I’m screwed! I’ve watched X enough, and I don’t think that will happen.
When I did the Buy-Write I gave the trade a Risk Factor 3 because I felt there was danger holding the stock; getting stuck holding it for a long while. Now that I made this move today it’s a Risk Factor 5. It’s now a Naked Call, 20¢ In-the-Money, with 1 day until expiration.
Another thing that can happen is the stock drops going into the close today. If that happens I’ll try to buy back the option and end the entire position. Let’s watch and see!
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Successful trading,
Steve
The Options Coach