Below the line, you can see yesterday’s post on this issue.
Based on the close of the market last Friday, December 18, the bid-ask range for just out-of-the-money Novavax (NVAX) calls, expiry date December 24, was $8.50/$9.05. She has 24 contracts to sell. She expected to receive $21,072.00 (2,400 times $8.70, which is the halfway point between the bid and the ask price.)
That would have decreased her losses to $46,932.45. ($68,004.45 minus $21,072.00).
She wrote 24 covered call contracts, expiry date this coming Thursday (Friday is Christmas day and markets are closed) with a strike price of $2.00 out of the money to allow for growth if there is any.
“If” — the small word with the greatest significance in any language.
She received $17,640 (more than twice as much as she ever netted in two weeks while practicing dentistry full time) which brought her losses down to $50,364.45 ($68,004.45 minus $17,640). That allows $4,800 (2,400 times $2.00) for possible growth by Thursday, December 24 and further reduction of losses.
More will follow next Monday.
Historically, over the long term, passive investing has been the best way for growing savings and is are likely to remain so for many years. Investors can do that by buying an exchange-traded fund that tracks the S&P 500. The Monday Morning program encourages that evidence-based approach to investing.
What you see below is NOT passive investing, however, many of our members are interested, so we write about that once in a while.
We have been following the covered calls record of one of our members. In August, she committed about $500,000 to buy (NVAX) shares at over $174 per share because the premiums on covered calls were attractive! In short order, she lost $232,407.50 on the security itself.
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!!
Her share were called away a few times. Because the premiums remained high, she bought the shares back even though that was at a price higher than the strike price at which they were called away from her. Her philosophy, correctly, is that when the returns are high, we do want to have more money invested.
Again, Novavax price dropped and again, she lost money being whipsawed by the market. On Monday, November 16, NVAX shares dropped further, bringing her losses back up to $103,984.05. Going in the wrong direction even though it is an improvement on the original loss of $232,407.50.
Last Monday, December 18, by continuing to write covered calls, she decreased her losses in this NVAX adventure to $68,004.45.
At the close of the market last Friday, December 18, the bid-ask range for just out-of-the-money NVAX calls, expiry date December 24, was $8.50/$9.05. She has 24 contracts to sell. Shortly after the NYSE opens at 9:30 today, she can expect to receive $21,072.00 (2,400 times $8.70 which is the half way point between the bid and the ask price.)
That should decrease her losses to $46,932.45. ($68,004.45 minus $21,072.00).
Will she ever wipe out her losses and begin making money on this adventure?
She plans to stay with this approach. We will keep you posted.
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