When the market opened at 9:30 AM yesterday, our intrepid, fearless investor bought 2,500 Novavax (NVAX) shares at 137.150 per share. She used the cash balance she received by having her NVAX shares called away last Friday, November 27, ($333,412.18) and added $9,462.82 to make the purchase.
Since the trend is your friend (until it isn’t), and since NVAX was trending upward, she then sold 25 covered call contracts further out of the money, at $140.00 (C 04DEC20 140.00) instead of just out-of-the-money. That will allow an additional $2.85 per share if any growth takes place.
“If” — the small word with the greatest significance in any language.
Growth or no, she got a premium of $6.76 per share for a total of $16,900.00 ($6.76 times 2,500). She never netted that much in a week, practising dentistry! Not even half of that! And she got it before breakfast yesterday, Monday morning!
If the growth which she hopes for does take place, she will receive an additional $7,125.00. ($2.85 times 2,500).
Yesterday, she decreased her losses in this NVAX adventure from $103,984.05 by $16,900.00 to $87,084.05. ($103,984.05 minus $16,900.00)
Next Saturday, December 5, we will report on her final results.
The Monday Morning program encourages index investing by buying an exchange-traded fund that tracks the S&P 500. Historically, over the long term, this passive investing strategy has been the best way for growing savings and is are likely to remain so for many years.
Many of our members are interested in derivatives (puts and calls) — which is NOT passive investing. That is why we write about derivatives once in a while. We have recently been following the puts and calls record of one of our members who lost $232,407.50 in a $500,000 portfolio when her Novavax (NVAX) shares quickly dropped by over 50%. She paid over $174.00 each for them, having bought them because the premiums on covered calls were attractive.
By selling just out-of-the-money covered calls on NVAX every Monday after that, with expiry date on Friday of the same week, she brought her losses from $232,407.50 down to $26,341.25 by November 13!!
However, at the market close on Monday, November 16, NVAX shares dropped further, bringing her losses back up t0 $103,984.05. Going in the wrong direction even though it is an improvement on the original loss of $232,407.50.
She plans to continue selling just out-of-the-money covered calls on NVAX every Monday with expiry date on Friday of the same week.
We will keep you posted.
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