Trade adjustment – Demand Media (DMD) – covered call

The last Friday my covered call against Demand Media (DMD) expired worthless. That left me with an uncovered stock.

I reviewed the stock and the entire trade and decided to exit the trade via a covered call trade. Selling covered calls against this stock is almost impossible due to a significant price drop of the stock.

My original stock purchase price was $9.50 a share and it was offset by a covered call buy-write trade. My final cost was $8.90 a share (without commissions).

 
(MORE: Options Expiration – November 2013)
 

Unfortunately the stock dropped to $5.24 a share (as of today). I haven’t responded to this drop properly and I ended up with $366 loss.

Thanks to selling more calls and puts against this stock I was able to offset this loss by 50%.

With this trade I plan to be assigned and sell the stock at $5 a share. I would be selling with a loss, but lesser than if I held a single stock only.

Here are the numbers in a nut shell:


-950.00 stock purchase in December 2012
+ 60.00 sold covered call in December 2012
– 5.00 covered call buy back in January 2013
+ 45.00 sold covered call in January 2013
+120.00 sold covered call in May 2013
+ 50.00 sold put in October 2013
+ 95.00 sold covered call in November 2013
————————————————
=585.00 cost basis

My current cost basis for the stock is $5.85 a share. If I get assigned I will sell the stock for $5.00 a share and my loss will be $85 total. Better than $366, right?

 
(MORE: Covered Call Trading Plan)
 

Not every trade will end up as a winning trade, but the goal would be to offset losses as much as possible. The battle for this trade is not over yet as the latest option contracts will expire next year and during that period of time many things may happen.

Here is the trade I took today:

11/20/2013 09:34:11 Sold 1 DMD May 17 2014 5.0 Call @ 0.95

This trade is planned not to expire but be called. That means I will be forced selling the stock.
 





One response to “Trade adjustment – Demand Media (DMD) – covered call”

  1. Nice job offsetting this loss. Sometimes its not about how much you make, its about how much you don’t lose.

    -RBD

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