We like to collect cash selling weekly put options.
But sometimes it pays to be patient and collect even more cash over time selling covered calls.
That’s the trade we closed recently … using one stock…making two simple trades.. and collecting $1,000 in profit.
Micron Technology [stock_market_widget type=”inline” symbol=”MU” template=”basic” color=”default”], the micro chip company, has been a trading favorite in my Options Income Blueprint since last summer when we mostly sold put options on the stock.
Micron is benefiting from the boom in the electronics and computer industries, which have been moving into a new 3 to 5 year product cycle, I call it the Consumer Tech SuperCycle. There is a high demand for new chips and Micron is right in the sweep spot. The stock is starting to act like a growth stock creating more volatility and richer option premiums for us to trade.
Last December, with Micron Technology trading around $42 and acting very volatile, we changed up our strategy. We bought MU stock at $42.42 and at the same time sold 3 covered call option contracts at the 45 strike with a January expiration. We collected $1.73 of premium per contract or $519 for the total trade.
The stock went on a run at the end of December so we bought the call option back early for $0.21 or $63. We still owned the Micron stock and we had already pocketed $456 on the trade.
We remained patient as Micron stock continued to stock continued to bounce around through the first part of January.
But we were not finished with our Micron trade.
When MU stock tumbled back down below $43 in January, we turned around and sold the MU February 43.50 covered call option and collected an additional $0.98 or $294 in cash premium with our 3 contracts.
After the nasty market sell-offs in early February, Micron’s stock price shot up past $43.50 to $45 a share.
At February expiration, we were called out of our Micron stock and sold it at $43.50…clearing $1.02 per share or $324 of appreciation. And we kept the $.98 or $294 in cash premium.
The total from owning one stock and making two simple covered call trades totaled $1,074: 45 Call Premium at $519 minus the $63 call buy back plus the February call premium of $294 plus the $324 from the sale of MU stock.
We will continue to generate cash premium from selling weekly options but sometimes it makes sense to buy a stock, sell a covered call and let it ride for even bigger cash profits.
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About The Author
Michael Shulman is a 30 Year Veteran of the financial markets – as a trader, a financial analyst, a financial writer and most recently as an educator.
Mr. Shulman made his first option trade in 1985 – COMPAQ Computer calls – a position that expired worthless. His second trade broke even; the third brought him a year’s salary, a near twenty to one return on his investment. He has never looked back. He entered the financial publishing business formally in 2001 as director of research for ChangeWave Research’s institutional research business and as the writer and editor of Hedge Fund Investing.
He has published two books – Sell Short and Made in America – both of which can be found on Amazon.com, and he is a frequent contributor to reputable financial sites like Seeking Alpha, MSN, MainStreetInvestor, and Traders Reserve.
Most importantly, since 2010, he has dedicated himself to teaching income investors how to get more income from their portfolios using simple yet safe options selling strategies which produce income every week. This approach was developed from the ground up in Mr. Shulman’s own accounts, his goal to develop a strategy that cannot be replicated by institutional investors of any size and therefore independent of fads and trends that change too often to provide a consistent approach for individual traders.
His trade recommendations in his Options Income Blueprint, Perpetual Income Portfolio Club and Income Masters services maintain a 98% success ratio, meaning his trades produce the expected income 98% of the time. No one’s perfect.