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Fear & Greed Trader
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Independent Financial Advisor / Professional Investor- with over 25 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Call Writing Portfolio Part 20 Adding MU 9 comments
    Feb 25, 2014 10:33 AM | about stocks: MU

    I added a new position this morning in Micron (NASDAQ:MU) .

    Purchased 1,000 shares of (MU) @ 24.40

    and sold the March 28 (Weekly) 24.5 option @ 1.09

    The yield if called away will be 4.8% for the month , & if not called we take in 4.4%.

    Total Income since inception $19,568

    Current holdings after the trade :

    (click to enlarge)

    This is an actual portfolio - created June 5 2013 ..

    The entire history of each trade is here in this blog ....

    Disclosure: I am long MU.

    Stocks: MU
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  • CWinn1970
    , contributor
    Comments (396) | Send Message


    I really need to learn about options. I'm assuming this would be a covered call. With my limited knowledge of options I feel like covered calls are the safest for me to use at this time.
    25 Feb 2014, 02:12 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (10277) | Send Message
    Author’s reply » Cwinn,


    yes this is called a covered call , as the trade shows you own the stock and sell the call against that position


    Each call represents 100 shares of stock,, so buying 1000 shares of MU , u will sell 10 calls . From the chart u can see that the income is 1080 , 1.09 x 10 - minus a $10 commission..


    In this case the calls expire on March 28th. IF the stock is above the "strike" price of $24.50 on that date the shares are then called (taken) away. If the stock is not above the strike price of $24.50 , the shares are yours and you of course pocket the 1,080 .


    The strategy works best when u find a stock u like , so if it doesn't get taken away , u don't mind owning it.. of course when it rebounds u can sell another call and get more income as I did in the EBAY trade..


    It may seem a bit convoluted since u are buying a stock u like BUT don't mind if it gets taken away :)
    I sometimes call it my "landlord" portfolio.. I just want to hold it for a month and collect the rent..


    The idea is to generate a steady stream of income..


    Note u are not confined to going out on the options for a month , they are many different months and strike prices to choose from when setting up a position..
    I prefer 1 - 2 months so if i am successful and get these stocks called away I keep a good cash flow going to turn the money over time & time again..
    25 Feb 2014, 02:34 PM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (8892) | Send Message
    You've decided for calls to never go over 100,000 invested for that specifically?


    I finally have options available on my account. So let me see if I understand this.


    > Premium is ask price x #shares (minus commission)
    > Call is 1 per 100 shares.
    > It's selling a put for a strike price higher than your price.
    > It works in a trading range.
    > If market bulls, it limits upside (but can still be nice percent gain.)
    > If market slides, you're stuck longer term with the stock at your original buy price, since you can't sell until options date even if it goes down. If the stock sinks for any legit reason, again you're holding it at original price and can't sell till options date. (Hence wanting to do this with stocks you'd want for longer term enough for them to come back up.)


    My gut in this case is the market might slide a lot during that month. Or (MU) may climb on it's own back to where it was - market may climb. It was up 5+% for me on a straight sell. I don't have any idea if it will do well in 6-9 months - less confidence than you born of less experience. I don't understand why it keeps going down so much. So it'd be better to sell for a profit when opportunity arises. And do this with a company I have more long term confidence in. I bought at $24.14, but uneven amounts. I'd have to add 35 shares.
    Three day away $24.50 strike gives me 2.4% gain. But so does waiting for regular price movements give me potential, and I can sell out - though I haven't any buffer room left if it goes down.
    25 Feb 2014, 11:57 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (10277) | Send Message
    Author’s reply » L,


    I use this portfolio as a portion of my holdings to generate income as the chart has shown..


    , but the strategy can be employed at any time n any portfolio.


    The thing u have to keep in mind is that you will at times give up gains IF the stock rockets higher.. You can never let that enter into your decisions , its difficult , because its human nature to say look what I missed.. However, look at the 4% return on my trade.. its for one month ..


    there is no instrument in the financial world that will give you that return in such a short period of time.. Is there some risk ,, yes, but if you follow the first rule and select a stock that u do not mind holding on for the long term then IMO , that risk is greatly diminished.


    Don't lose sight of the fact that if you have to hold that stock for a year before it gets back to where u bought it to sell another call at the same level or above you have pocketed 4% ... In a world of 0% interest rates that is a nice return ..


    IF i can do that over and over the percentage gain on that money over a year is incredible..


    Keep in mind I have MU shares that I bought for a LT gain,,


    these shares were purchased specifically to get the add;l income into that account .. There are plenty of others out there that u can follow this strategy .. for nice profits..


    if u have a chance go back and look at other trades posted here from last year .... to get a better feel for how it works..
    26 Feb 2014, 08:57 AM Reply Like
  • HFI
    , contributor
    Comments (1692) | Send Message
    Conceptually, this is a really smart strategy. I use it myself from time to time.


    However, one thing that readers have to keep in mind is that fundamental analysis is crucial in this case. If the underlying stock does not have an inherent margin of safety, the downside risk will always be greater than the income generated through the call selling strategy.


    Another thing to keep in mind, if the shares get called away, you have to buy them back albeit a higher price, and that creates frictional costs and short term gains (if conducted through a taxable account.)
    26 Feb 2014, 08:03 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (10277) | Send Message
    Author’s reply » Wilson


    thanks fro your comments,


    if my shares get called away , i won't go back and buy them back unless they trade lower than my original price ..


    The idea here is to generate income & move on..
    26 Feb 2014, 08:30 PM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (8892) | Send Message
    What's happening with (MU) nowadays? It was up 5-6%. Then it's come down and keeps getting downward pressure. Has it become a less trendy stock?
    26 Feb 2014, 08:08 PM Reply Like
  • HFI
    , contributor
    Comments (1692) | Send Message
    No idea, but my short calls are making good money.
    26 Feb 2014, 08:24 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (10277) | Send Message
    Author’s reply » L,


    pull up a daily chart of (Mu) its in a nice uptrend


    it takes two steps up then one step back and that is the best way for a stock to slowly grind higher.


    When stocks make a parabolic move up, the downside can become as volatile and rapid as the upside move


    That is also why this is a good stock to use in the option writing game...
    26 Feb 2014, 08:35 PM Reply Like
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