First, note that we are now offering our yearly subscription for $12. Please refer investor friends and relatives to our program.
Next, let us revisit our fearless, intrepid investor’s “fun” portfolio.
Here is a summary of her year-to-date Novavax (NVAX) position.
Year-to-date losses = $566,547.93
Year-to-date gains = $459,375.45
Final year-to-date losses = $107,172.28
She started by losing $232,407.50 in about one week by buying NVAX at the very top.
She sold and continues to sell just out-of-the-money covered calls on NVAX every Monday, expiry date Friday of the same week. She has been doing that for about a year and a half now. The above figures show the gains and the losses on NVAX since that time.
All her gains came from writing (selling) just out-of-the-money covered calls on NVAX each Monday, expiry date Friday of the same week. Occasionally, she wrote further out-of-the-money covered calls to allow for some growth if there was any. That worked out half the time.
Like most “fun” portfolios, hers is not much fun but is getting to be less painful.
Here is what she will do it when the market opens at 9:30 AM today, August 9, 2021.
Since her 1,700 shares were called away last Friday first, she will buy 1,700 shares of NVAX. Based on the last sale of the day last Friday, August 6, that will cost her 1,700 times $189.89 = $322,813.
She will then sell 17 just out-of-the-money NVAX covered call contracts, expiry date, Friday, August 13. (NVAX C 13AUG21 190.00) The ending bid/ask spread last Friday was $8.85/$9.10, so she expects to earn a premium of about $9.00 per share or 1,700 times $9.00, which equals $15,300.
During her best years in dental practice, she needed nearly 2 weeks to net and that kind of income.
Percentage return for the week? $15, 300 divided by $322,813 multiplied by 100 equals 4.7!
And the possible outcomes? There are two, as we stated previously….
- NVAX, the underlying security, might drop by more than she receives in premium income resulting in an overall loss on the transaction. She views NVAX as a money tree, throwing off cash while it grows and shrinks and grows and shrinks.
- NVAX might rise above her strike price. The buyer of her covered calls will be able to acquire the security from her at the strike price and profit from that rise. She will receive cash and need to buy NVAX again if she decides that the premium income on selling covered calls on it warrants that.
With the habits of the Monday Morning program, luck hardly matters. Selling covered calls on individual securities ignores habit number 3, that is, buy the US market as a whole with no stock picking.
With what she is doing here, luck does matter.
Remember what you see below.
Resulting from its involvement in derivatives, in 1994, California’s Orange County declared bankruptcy.
Resulting from its involvement in derivatives, in 1998, Long Term Capital Management needed a $3.6 billion bailout from 14 financial institutions to prevent market panic and collapse of the entire financial system.
Gambling with derivatives, many individual investors keep losing 100% of their money.
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