On 12th May 2022, Tesla was at one stage trading at USD707. Yesterday, on 19th May 2022, 7 days later, Tesla was also trading around the same share price. If you have been an investor, i.e. you buy and sell Tesla shares only, you would have zero gain as the share price stayed the same. However, using the power of options, I have made a USD1k profit during this period.
Here is how it works.
On 12th May 2022, I sold a CALL option contract on my Tesla shares (100 units) at a Strike Price of USD1,200 (the price I am comfortable selling), expiring on 16 June 2023 (400 days contract), and received a premium of USD7,900. The delta is 0.34, which means for every share price movement of $1, the option premium will also move $0.34 in the same direction (up or down).
How CALL Option Works?
Understanding How CALL Option Works
On 19th May 2022, when Tesla was trading around the same price USD707 (the price when I first sold the CALL option contract on 12th May), I realised the premium has dropped to around USD6,900. This could be due to time decay or changes in implied volatility (IV) which caused the premium to drop.
How Implied Volatility Affect Premium Price?
What Is Implied Volatility (IV)?
So, I bought the CALL option contract to close my previous position and my profit is the difference between my Sold price (when the contract starts) and my Bought price (when the contract closes), which is 7,900 minus 6,900 equal to 1,000 profit.
This is an options strategy that I have used extensively in 2022 to profit from a falling market as many days closed in the red this year. A falling market favors the CALL option contract seller because the premium drops together with the share price and the seller can buy back the contract at a lower price and lock in the profits.
Read more about the strategy here:
Why I Choose To Roll My CALL Option Contract When Share Price Falls
I have also modified the strategy to get more premium through selling long-dated covered CALL contracts. I have further explained the method in this post:
I Discovered A Way To Generate Higher Returns From Selling Covered CALL
The market may continue to fall in the coming months but in every crisis, there are opportunities. We can either buy the shares of great companies at a very good price or earn some income using simple options strategies like this so that the money can later be deployed to buy shares or for personal use.
*** FREE RESOURCES ***
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
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 on executing these trades:
MY 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 sense 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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Learning Investment With Jason Cai 