Logical Progress Advancing a Little Bit Every Day

30May/130

Selling those Ford calls was a bad idea

A lot of times in life you learn lessons the hard way, and you base your actions on expectations of the future, right or wrong.

Ford is now trading at $15.80 pre-market. I wrote calls with a strike of $15, so I'm leaving a ton of money on the table. My only saving grace here is that I still have 200 un-leveraged shares in another account with a buy price about $10, so I'm still sitting pretty.

On the flip side, because its moved so far away from $15, the premiums on $15 puts expiring next week are going to be practically zero. This is a shame, but at least I put my money to work for me, otherwise that $3000 would have been sitting earning zero interest.

Here is a summary of the anatomy of this trade:
Wrote 2x $15 puts expiring May 24 for a net return of $22
Prior to assignment, I wrote the $15 calls expiring May 31 for a net premium of $14
My total return on the $3000 required to be put on the line was $36, or 1.2% over a two week period. A rough annualized return on this would be about 31.2% assuming I'd be able to repeat this scenario every two weeks, unlikely though.

However if I hadn't written those calls, I'd be up $160 on the whole position. I was certain it would waver around $15 for a little bit, and I'm overall bullish on Ford, but never expected it to rise so much so fast, especially during yesterday's brutal sell off.

Oh well, the important take away here is this: a small profit is better than a massive loss.

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