Last week I owned 200 shares of U.S. Steel (X). I also had (2) 1 contract Covered Calls expiring on Friday. I had a 1 contract $23.50 Covered Call and a $24.50 Covered Call.<\/p>\n
Late in the day on Friday X was in the $23.25 area. I felt I would not get assigned on either of the Calls.<\/p>\n
With about an hour left to the trading week I decided to sell another Call to expire this coming Friday, 4\/30, to get a jump on this week’s income. I like to do this once in a while because you get a better premium with an 8 day Call than with a 5 day Call if I waited until Monday to cell the next Call. I only do this when I’m very confident I will not get assigned on the Call that’s in play.<\/p>\n
When you do this you have 2 calls sold against the 100 shares. For a short time you will have 1 Covered Call and 1 Naked Call. Once the market closes for the week on the first Call, that Call expires and the stock will cover the new Call you sold for the following week.<\/p>\n
So, on Friday 4\/23, with about 1 hour remaining to the trading week, the stock was at $23.25. Again, I had $23.50 and $24.50 Covered Calls. I knew the $24.50 Call was safe from assignment, and I also felt the $23.50 Call was safe. I did not think the stock would move above the $23.50 Strike Price. As fate would have it, in the final hour X went up above $23.50 and I was assigned on the 100 shares. My $24.50 Call expired and the shares I owned covered the new Call I sold, but the new $23.50 Call I sold to expire 4\/30 was left Naked because I was assigned on the 100 shares.<\/p>\n
I know this is a long winded story but I think it’s important for a Grasshopper to understand.<\/p>\n
This week X continued up as high as $24.96. Yesterday and today the stock dropped and I just bought 100 shares at $23.15. My $23.50 Call that expires this Friday is now Covered.<\/p>\n
<\/p>\n