Tomorrow will be the time to reap the profits, harvest the gains or count the loses. Since the day I decided to trade only covered calls and cash secured puts and buying dividend stocks my goal was not to lose a penny. As Warren Buffets says it.
Easy said, difficult to do. I have a couple of options trades which are not going well as far as now, but I have plenty of time to wait since the expiration day is far away and a lot of things can happen until then. So there is no need for panicking.
I hold a covered call of MBIA (MBI) stock, which is now deep in the money and that means it will get execute tomorrow. The option will be exercised and I will be required to sell my shares of MBI.
The guy on the other side will make nice profit. He will buy the stock for $9.00 a share and sell it for 10.95. Very nice gross profit of $1.95 a share. He paid 0.52 to buy my call, so his net profit (without commissions) will be 1.43 per contract.
But what about me? will I lose money?
This trade didn’t go well from the beginning and later I was even considering closing the ugly trade. But as many times in the past, the ugly ducklings turn into nice swans, this trade also turned to be a swan. If you remember, I opened this trade with a purpose of being assigned. It was my goal to get assigned because it was how I could make money on this trade.
Here are the trade details:
| Bought 100 shares MBI: | $8.18 |
| Strike: | $9.00 |
| Sold 1 Covered Call: | $0.52 |
| Total Purchase: | $766.00 |
| Commissions: | $8.78 |
| Total purchase: | $774.78 |
| Expected Option Assignment: | $900.00 |
| Option Assignment Fee: | $19.00 |
| Expected Proceeds: | $881.00 |
| Expected Net Gain: | $106.22 |
| Expected ROI: | 13.71% |
The call option is deep in the money, and it is very unlikely that it falls below $9.00 a share tomorrow, so I can consider this trade as victory and Count the Money…
My other options have expirations in March, May, July and August 2013 and there is a plenty of time (value) in those options.
Happy Trading!
That’s a nice gain there!
Have you considered switching brokers? A $19 assignment fee is pretty steep! I wrote a few covered calls in the past with positive results until one was eventually called. I was shocked that I had to pay an additional fee and really made me reconsider what I was doing especially since I did not want to lose the position. Anyways fidelity offers $7.95+$.75, $7.95 assignment last time I looked. I know other brokers are even cheaper.
Keep up the good work!
I was, but I am very conservative person. I opened accounts with Scotttrade and Fidelity, but none of them approved me for options trading as I have with TD Ameritrade. With TD I have the highest tier approval, so I can write naked puts. I do not know about any other broker at this moment. So I count my trades and potential profits having this huge fee in mind.
Thanks for stopping by Marvin. Yes I can already see the effect on the overall portfolio. On monthly basis I am beating the market and those proceeds are a great help growing my portfolio.
Congrats Martin! That’s an awesome return, keep on with these and you’ll be able to retire in no time!