Covered Calls
It was a shortened day on Wall Street. The market closed at 1pm EST. Despite the short day, it was trading as usual. Closed a few puts on market open as the market was up. The two CRWD puts I could have closed yesterday (there was a small profit on both) were bought back today for less than I would have paid yesterday. I made more of a profit by being patient and waiting a day. Yesterday those puts had gone positive because CRWD had become less negative. Today they were even more positive because CRWD opened up. I also closed Reddit (RDDT), Vistra (VST), Oracle (ORCL) and Palo Alto (PANW) puts as well.
As the market was up, there were not a lot of stocks trading down, which meant there were not any real opportunities for puts. I did sell a call on Advanced Micro Devices (AMD) as it was up for a change. I own a fair bit of AMD and have for a while. I consider it a core holding, one that is always in my portfolio. It does, however, get called away on occasion. Currently I have a full position, so I regularly sell calls against it to make sure it is adding to my income rather than simply sitting in my portfolio doing nothing.
Today I wrote a call for AMD around 10am when it was up about 2%. I noticed the call going positive over the next hour. AMD was still positive but slipping lower as the day progressed. At 11am I wrote a ‘buy to close’ order that, if it was triggered, would make me a nice profit. I sold the call at $9.25, and by 12pm had bought it back at $8.80. For a single call contract (representing 100 shares of stock) the profit would have been $45 dollars. I had a more than one contract. Since I have completely closed out of that trade, I will try and write the same call again tomorrow if it is up again. This one way of ‘trading around a core position.’
Although $45 dollars may not seem like it was worth closing the contract the same day, I make money because I can trade more than one contract per stock. When I began, I was excited when I built up to 100 shares of a single stock so I could trade one option contract. I gladly took my $45 dollars in profit (although less because of trading fees) and hoped to do it again the next day. Eventually I owned over 30 different stocks and any given day I could write call options against at least half of them Years later, I have built up my positions, so I am making more money because I own hundreds of shares in some stocks and have more than 30 stocks in my portfolio. The returns from writing covered calls (so called because if I am called, I own the shares to be called away) on the positions I own can be impressive.
So, try and build up your stock positions to lots of 100 so you can write covered calls. Stocks I want in my portfolio long term I always hold in lots of 100 so I can trade options against the position. I always buy stocks in roughly thirds; if I like a stock and it drops suddenly, I will buy a third of the total amount I want to eventually own. Given my desire to own 100 shares of stock, I modify this rule somewhat and buy 40, 30, 30. I try and buy 40 shares initially and it drops more, I buy another 30 and the final 30 if drops again. It can take months to get a ‘full’ position (i.e. the total amount of shares I want to own). I rinse and repeat for the next 100 shares I buy. (P:11.3)