How to use derivatives as a source of added income. June 21, 2021

This is our weekly post dealing with derivatives (calls and puts). Over 80% of our members are interested in the subject. 

When the market opens at 9:30 AM today, June 21, Rosi and I plan to sell 18 just out-of-the-money covered call contracts on the 1,800 shares of Novavax (NVAX), which we hold in our “fun” portfolio. (Value about $314,000.00)

Based on the final sale at the closing bell last Friday, June 18, we should get about $6.00 per share, or, $6,000 per contract for a total of $10,800.00 for the week. A bird in the hand, money in the bank! I never netted that much money in one week practising dentistry.

Percentage return for the week?  $10,800.00 divided by $314,000.00 and multiplied by 100 equals 4.44%!

We bought the 1,800 shares of Novavax (NVAX)in our “fun” portfolio at an average price of $225.01. Last Friday, July 18, NVAX closed at $174.41. So, we lost $91,467.99. Not much fun.

This year to date, we have made $38,509.81 selling NVAX covered calls in our “fun” portfolio. We sold just out-of-the-money contracts and further out-of-the-money contracts to benefit from any growth if there was any. The $38,509.81 offsets our losses somewhat, but the losses are still significant.

Maybe the title of this post should be: “How to use derivatives as a source of subtracted income.”

But… “To succeed, make more mistakes” is sound advice.

What were our mistakes? What can we learn?