We usually follow the options selling activities of our fearless, intrepid investor on Mondays. Due to a TD Bank computer glitch, she did not have the information when we wanted to write this post. That’s why you were seeing it on a Tuesday.
The Monday Morning Program recommends only selling options and never buying them. Further, members should do that only in their “fun” portfolio which should be a small percentage of their overall stock market exposure.
Now, back to our fearless, intrepid investor. In 2021 she took a real beating writing (selling) covered calls on NVAX. She lost $65,700. As we said, the risk in selling derivatives entirely comes from the underlying security involved. Because of that, most experienced investors sell derivatives using a safe underlying security such as an exchange-traded fund that tracks the S&P 500.
The one thing our fearless, intrepid investor did correctly is to do her covered call selling in her “fun” portfolio. Like most departures from the six habits, it has not been a lot of fun, but it makes up a small percentage of her overall assets.
What did she do when the market opened at 9:30 AM yesterday?
She has 1,000 shares of NVAX. The company is dropping in price and now stands at 57% undervalued.
More than 50% of the shares are held by institutions which are some of the most knowledgeable investors in existence.
Accordingly, she expects the price to go up. If she writes covered calls on it she will need to buy it at increasingly higher prices to stay in the game. Because of that, she decided simply to hold the stock and wait for it to rise in price before she starts writing covered calls on it again.
Next Monday, February 1, we will report how her tactic worked out and her plans for that week.
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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