I first enter options trading for Pinterest stock in March 2021 where I sold a PUT contract and received 7.81% returns in just 16 days. Subsequently, I sold more PUT contracts on Pinterest but the share price started going down and my PUT contract was exercised. Since then, I have been selling covered calls on Pinterest to date.
My buy price for Pinterest was $80 as it is the strike price for my PUT contract. If I minus off all the premium I have earned from options trading on Pinterest, my breakeven price for Pinterest is $66.76. At Friday’s (29 Oct 21) closing price of $44.64, it is almost 50% down from my buy price and more than 33% down from the breakeven price.
Instead of doing and praying for a recovery on the stock price, I sold a CALL option contract as I have 100 shares of Pinterest in my account. The details are as follow:
Type of Option: CALL
Strike Price: $50
Expiration Date: 12 Nov 21 (14 days)
Premium Collected: $95 (1.42%)
I managed to get a return of 1.42% in just 2 weeks from Pinterest stock because of this option contract. The returns (premium) are considered high for a 2-week contract as IV on 12 Nov is extremely high at 80%. This resulted in a higher premium for the seller of the option contract. With the premium collected, I further reduce my breakeven price of Pinterest to $65.81.
Read more about IV and how it affects options contract here:
What Is Implied Volatility (IV) And Why It Matters In Options Trading?
Risk & Possible Outcomes
If the share price stays below $50 on the expiration date, I will not have to sell my Pinterest shares at a loss.
If the share price of Pinterest on 12 Nov 21 is above $50, say $53, I will have to sell my 100 units of Pinterest at a loss of $15.81 per share ($65.81 – $50) and suffer a loss of 24%.
There is a way to get out of the situation if Pinterest is showing signs of a bullish trend and it seems likely that the contract will be exercised. The solution is to buy back the contract (often more than the premium I received from the CALL contract) and stomach a small loss (of the premium price difference) before the expiration date. In that way, I do not have to suffer a heavy 24% loss by being forced to sell off my stocks at $50 when the option contract is exercised. I can still continue to sell a new CALL contract or wait for the price to recover.
Related Articles:
How PUT Option Works
How Call Option Works
How Does The WHEEL Strategy Works?
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Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
The Newbie’s Guide To Options Trading
The LEAPS Strategy has helped me make more than USD120,000 in 2021. Here’s all you need to know about this strategy that can help you increase your wealth exponentially:
The Ultimate LEAPS Options Thread
Looking for ideas on what stocks to invest in or which stocks to trade? You can take reference from what I have been buying or selling. I try to update them as soon as I can in this section, as well as share my thoughts behind executing these trades:
MY TRADES
Excited to start your trading journey or perhaps try out with a paper trading account to build your confidence in trading? Check out this step-by-step to help you get started:
How To Buy Options on Interactive Brokers (Step-By-Step)
I watched tons of videos on YouTube since 2020 and if you are wondering if there are any useful channels that you can subscribe to for learning market trends, TA, FA, check out this compilation here:
My Secret Weapons For Options Trading: I Watch These YouTube Financial Channels Every Day
I concluded my first year of options trading with more than USD160k of gain, see how I do it and the capital I use for every month to give you a sensing of the percentage yield I get out of my gains:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021
This blog is as authentic and as transparent as I can share, I do not just show the wins and hide the loss. I have made some very bad decisions in the first 8 years of investing and paid a huge price for them. Here is the loss I have accumulated during these years. I hope you learn some lessons from my mistakes.
I Cut $135,715 Worth Of Losses In The Last 1.5 Months
Learning Investment With Jason Cai 
Hi Jason, new subscriber here. May i know which platform you are using for options trading? cheers
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Hi Shaun, thanks for subscribing. I am using Interactive Brokers. Will do a thread on that soon as I have quite a few queries on that. Cheers 🙂
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Hi Jason, thanks for the post. As the original intent is trading, and every trade we do must have exit strategy before entering the trade. However, there is lack of exit strategy for this trade. We don’t know if pininterest is going to turn its down trend to uptrend, no one knows about it, and if the price drops further, this will hurt your portfolio, although it maybe able to offset slightly by the premium collected from the call option. In my humble opinion, this should combined with the position sizing/maximum size per trade to the portfolio size and the exit strategy. Good luck to you!
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Hi Kk, thanks for your insight and advice! I actually intend to keep Pinterest for the long term to do the Wheel Strategy. But it plunges too fast in the past few months. Ha.
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