Today While I was watching my active positions I saw a nice opportunity to exit a 10 contract Covered Call on YELP. I had two 10 contract Covered Calls going and I exited one. One is still active. The one I exited went as follows. I Sold the 10 contract Call on 9\/9\/16 and I bought the 1000 shares of the stock to cover the Call on 9\/12\/16. The reason I decided to exit the position is, the stock I bought for $37.80 and I was able to sell the 1000 shares for $40.50 which was a nice profit. The Call I received a premium of $3.04 and I was able to buy it back for $3.50. Since the profit on the stock was much bigger than the loss on the Call I went for it! Let’s take a look at the “Sell to Open” order and the “Buy to Close” order and see what the loss is:<\/p>\n
Loss -$460<\/strong><\/p>\n As you see on the sale I received a premium of $3040 and to get out of the Call it cost me $3500. Now let’s take a look at the stock buy order<\/strong> and sell order<\/strong> and see how that adds up:<\/p>\n Profit +$2700<\/strong><\/p>\n You must remember, this Covered Call had another 53 days (11\/18\/16) before expiration. I thought it was a nice opportunity to exit the entire Covered Call position taking a little loss on the Call and making a real nice profit on the stock. The total profit on the Covered Call is +$2240. I invested the $37.800 on 9\/9\/16. In 18 days I locked in a profit of $2240. That’s a 6% Rate of Return in less then 3 weeks. My strategy might not be good for everyone but this is the type of deal I love.<\/p>\n <\/p>\n Let’s examine what the possibilities would be if I held the position. The best case would be on 11\/18\/16 the stock closed at $40.01 and I was assigned. Some would like the close on expiration to be $39.99 and not get assigned. We know I like assignment! With my best case scenario I get assigned and make $2200 on the stock and keep the entire premium of $3040 for a total gain of $5240. That would be great! That’s why I got into the deal in the first place. That would be a 13.8% gain for a 2 and a half month holding. Fantastic! If the stock closed well above the Strike Price on expiration, let’s say $45. The gain would be the same, only in this scenario you would have an Opportunity Loss<\/a><\/span>.<\/p>\n If you’re a regular reader of Main Street beats Wall Street<\/strong> you know I don’t like owning stock. I’ve had many Covered Calls over the years where the stock went way down and I was stuck holding the stock for a long time without being able to sell Calls because I couldn’t get the premium I wanted because the stock was too low. Let’s say on 11\/18\/16 YELP was at $30. I would keep the premium $3040 and I would also keep the stock well below where I bought. At this point I would be up $3040 with the premium but my account would be down $7800 on the stock. You might think this is far fetched but it happened to me many, many times. This is why I take profit when I can. I have a different strategy then I had in years past. If I pocket money, I’m not a loser! Many of you might not have done what I did and waited for the bigger profit and it might have worked out great. Me, I learned many lessons over the years and I like to take profit. My education was not cheap!<\/p>\n I still have another Covered Call with the same Strike Price and the same Expiration Date but with different entry points on the stock and the Call. That one I didn’t like the result if I exited today. I will watch and see how this one works out.<\/p>\n <\/p>\n Any questions, please email me. Would you have held or sold? I like to know what you’re thinking.<\/p>\n <\/p>\n Steve<\/p>\n The Options Coach<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Today While I was watching my active positions I saw a nice opportunity to exit a 10 contract Covered Call on YELP. I had two 10 contract Covered Calls going and I exited one. One is still active. The one I exited went as follows. I Sold the 10 contract Call on 9\/9\/16 and I […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-2124","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p75MP0-yg","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=\/wp\/v2\/posts\/2124","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2124"}],"version-history":[{"count":1,"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=\/wp\/v2\/posts\/2124\/revisions"}],"predecessor-version":[{"id":2125,"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=\/wp\/v2\/posts\/2124\/revisions\/2125"}],"wp:attachment":[{"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2124"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2124"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.mainstbeatswallst.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2124"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Buy 1000 shares YELP @ $37.80 (-$37,800)<\/strong><\/h4>\n
Sell 1000 shares YELP @ $40.50 (+$40,500)<\/strong><\/h4>\n
Covered Call Profit +$2240<\/strong><\/h4>\n