It was a great green day on 31st Jan 2022 as many stocks spike on this day, signalling that the market may have priced in the interest rates that are coming up this year.
Tesla closed with more than a 10% increase in share price, so did some of the stocks that I am selling covered call on.
Palantir was up 7.87% and Pinterest was up 10.13%.
Nio was also up 17.27%.
This means that the premiums for these covered call contracts also spike up. Thus, in order not to let the contract get exercised as my Strike Price (SP) is much lower than my average price (which means I will suffer a huge loss if the contracts get assigned), I have to buy back these contracts at a higher premium and incurred losses.
|Name of Stock||Strike Price (USD)||Premium Collected (USD)||Returns (%)|
|Palantir||13||14 x 40 = 560||2..05|
The previous total premium of USD839 was totally erased and to close these contracts, I have to fork out an extra USD1.06k.
This is the risk of selling covered calls if you do not wish the contract to get assigned. You will need to buy back the contract at a loss when the share price exceeds the strike price before the expiration date.
I chose to close my covered call contracts as they are close to the expiration date (4 Feb 22) and if the share prices of these stocks rally for the next few days, I will incur a greater loss buying the contracts back to close them.
The reason for selling covered call way below-average price is because the current share price has fallen way below my average (breakeven) price and selling at that average price will not bring any premium. Thus, in order to earn a higher premium, I am taking the risk to sell covered calls at a lower SP.
This strategy of selling covered calls way below the average (breakeven) price works when the stock is trading sideways or on a downtrend. If share price rises or spike, it will be better to close them soon to prevent a bigger loss, especially when the contracts are close to expiration.
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:
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)
If the bear market in 2022 is making feel depressed as your stocks come tumbling down, read this article to find out how you can use options trading to help you claw back some of your losses as you await market recovery:
How I Do Earn Even When The Stock Market Is Bearish?
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
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