On 12 April 2022, the US stock market started in the green after the release of Consumer Price Index (CPI) data for March, which is at a record 8.5%, the highest since 1981. After consecutive days of market going down from last week, including the huge selloff on Monday, my covered call contracts have generated some returns (guaranteed profits) for me, if I were to close them now.
This means that due to share price falling, the premiums that I have collected (from selling the covered call contracts) are now higher than the premiums that I need to pay if I wish to close the contracts now. So, if I close the contracts now, I will get the profits (difference of 2 premiums) without the requiring to fulfil the obligations of the contracts.
In a covered call option contract, the seller benefits when the share price falls, because it will be further away from the Strike Price (recall that if share price is higher than strike price upon expiry, the seller is obliged to sell his shares to the buyer at the strike price). The more the share price falls, the lower the premium will become and thus, the higher profits will be generated. On the contrary, if the share price rises, the call options contract’s premium increases and the returns (profits from closing) drops.
When I saw from the premarket that the market was in the green, I was on standby to close my covered call contracts in AMD, Nvidia (2 contracts), Palantir, Nio and Tesla, when the market started at 9.30am (US time). I was trying to quickly close the contracts and secure maximum profits before the share prices rise further, which I thought would usually be the case as investors FOMO (Fear Of Missing Out) buy.
As you can see from the Profit Summary Table below, my total earnings from closing 6 covered call contracts that I have started last week is SGD3,187 (USD2,361).
If you are interested to know the details of these trades, the contract details as follow. They are basically OTM call options, which give me a higher margin of safety of my shares getting call away at the expense of a lower premium.
After closing the covered call contracts, I waited for the share price to stabilise and started another round of new covered call contracts, as I believe the market is not able to sustain the momentum to keep pushing up the share prices, especially with a high CPI data figure. As it turns out, the share prices of the various stocks such as Nvidia, AMD, Tesla, started falling after I sold the covered contracts. If you have noticed from the trade details table above, I closed my Tesla covered call contract within the same day and earned a profit of USD250.
This happened as I sold the covered call contract when Tesla was at USD1,010 and closed it when Tesla was trading below USD1,000, all happening on the same day. As I have explained earlier in the post, share price drop equates drop in premium which results in higher profits earned. I later sold another covered call contract on Tesla at a lower strike price of USD1,150 and collected a premium of USD2,320.
In the coming days, the share prices may continue to fall and my strategy would be to keep rolling (close and open new contracts) to a lower Strike Price) or a later expiration date. If there is an unexpected rally, then I will be looking for opportunities to sell away my LEAPS contracts or roll my PUT contracts.
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:
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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:
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?
Also, check out my trading strategies in different market conditions, whether it is bullish, bearish or volatile:
How Not To Lose Money In Trading? | My Trading Strategies For Bullish, Bearish And Volatile Market
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
Want to learn more about Technical Analysis (TA) but find it difficult to grasp the concepts? This article brings you TA at a glance, and helps you understand key terminologies, indicators, and techniques used in TA to equip you with the knowledge that can empower you in your investing/ trading journey.
The Newbie Guide To Technical Analysis (TA)
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)
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