Great question 😀 I initially bought the stock (1300 shares) for 74.80 then sold 13 $75 contracts on them for 3.05 each for 8/2. This means if I wanted the two weeks until 8/2 for it to expire and the stock was $75 or above, the shares would get called away and I would have the 4K profit. However, because it jumped so suddenly. I bought back the contracts early at a loss (bought at $5.25 each) but I was also able to sell the shares back at 78.5. The end result was a profit of 2k because while I lost money on buying back the contracts, I gained more money from selling at a higher price. This is a general strategy with covered calls. If the price spikes, then you can generally sell for some profit (in my specific case it was 50 percent of the contract value). The other case is if the stock tanks but you think it might bounce back up. That’s when you can buy back the contracts for a cheaper price, wait for the stock to rise, then sell the contracts again for a higher price 😀
Here first
Did your shares of Starbucks get called away since the price is above the call price
Great question 😀
I initially bought the stock (1300 shares) for 74.80 then sold 13 $75 contracts on them for 3.05 each for 8/2. This means if I wanted the two weeks until 8/2 for it to expire and the stock was $75 or above, the shares would get called away and I would have the 4K profit.
However, because it jumped so suddenly. I bought back the contracts early at a loss (bought at $5.25 each) but I was also able to sell the shares back at 78.5. The end result was a profit of 2k because while I lost money on buying back the contracts, I gained more money from selling at a higher price.
This is a general strategy with covered calls. If the price spikes, then you can generally sell for some profit (in my specific case it was 50 percent of the contract value). The other case is if the stock tanks but you think it might bounce back up. That’s when you can buy back the contracts for a cheaper price, wait for the stock to rise, then sell the contracts again for a higher price 😀