I have so much to report I don’t even know where to start. Plus I’m trying to get my trading in. The bottom line is, I’m gonna post everything I need to report, one position at a time. If you can keep track of all my moves you are a loyal Main Street beats Wall Street follower!
Because of my crazy deal with Palantir – which I’ll be writing about soon – I didn’t get my Results Week Ending 11/27/20 completed. One of the trades I didn’t get into in that report is my Micron trade.
Last Monday I sold 10 Contracts of the MU 11/27/20 $64 Calls for a premium of $1 for $1000. This position was Naked. When selling a Naked Call you must deliver the stock if it closes In-the-Money. If you are Naked and the stock is closing In-the-Money you have a decision to make. In my case the stock closed at $64.23. Late on Friday I could have done a “Buy to Close” for about 25¢ ($250) to get me out of the obligation of delivering the stock. I could have bought the stock so I covered the Naked Call. Or I could do nothing. If I do nothing my broker has to borrow the 1000 shares of MU and deliver the shares to the Call buyer. If the broker does this I will be Short the stock and at some point I have to buy the 1000 shares of the stock and replace the borrowed shares. This is what I did. I am now Short 1000 shares of Micron at $64. This was my strategy. The question is, why did I do this?
I don’t think Mu is going much higher in the short term. I wanted to Short the stock. First I sold a Naked Call, which is a Short position. If the stock went down and closed below my Strike Price the position would have expired, I keep the premium, deal over! Since the stock closed above my Strike Price I am now Short 1000 shares of Micron. Now what do I do? Before I get into that, remember I keep the $1000 premium.
I can just wait for the stock to get below $64. The more it goes down the more I make on my Short position. At some point I buy the stock to replace the borrowed shares. EX: If the stock drops to $63, I can buy the stock and replace the shares. Making $1 ($1000) on closing the Short position. When being an options trader you must understand how Short positions work.
This is one way to handle the situation. This was not my strategy. Everyone knows I’m in this game for the premiums. So I brought in a premium! I just sold a 10 contract $64 Put for a $1.40 premium for $1400. This position, along with my Short stock position is a Covered Put. For Main Street beats Wall Street readers this is a completely new strategy. Actually, it is also new to me. This is a strategy I’m working on and I plan on doing a lot more if the opportunity presents itself; like a down market, or if I’m bearish on an individual stock. I’m not quite bearish on Micron but I’ve been in the stock many times I think I know how the stock moves, so I decided to try it out with this stock.
Sell to Open 10 MU 12/4/20 $64.00 P @ $1.40 (+$1400)
As I’m writing, Micron started to run up a bit, lol. It’s OK. I grabbed a nice premium and I’m trying out a new strategy for a market downturn I’m expecting.
When used to buying and selling Call options, getting into Puts can be very confusing. We’ll learn together! Send me an email if something isn’t clear.
Watch for more posts. I have a lot to report and catch up on.
Successful trading,
Steve
The Options Coach