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, so we write about that 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 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.
At the close of the market last Friday, November 27, the bid-ask range for just out-of-the-money NVAX calls was $9.85/$10.15. That is more than two and a half times as much as it was on the previous Friday at $3.20/$3.65. Two and a half times more interesting!
Last Friday, November 27, she was assigned and her shares were called away. She ended up with a cash balance of $333,412.18.
When the market opens at 9:30 AM today, she plans to buy all the NVAX shares possible, using that cash balance. It will come to 2,600 shares.
NVAX is trending upward. Since the trend is your friend (until it isn’t), she plans to sell covered calls further out of the money at $130 (NVAX C 04DEC20 130.00 US). That will allow four dollars for growth and still get a handsome premium of a minimum of $8.00 per share, based on last Friday’s closing numbers. Of course, that could change.
If no growth takes place, she should receive $20,800 ($8.00 times 2,600). If the growth which she hopes for does take place, she will receive an additional $10,400 ($4 times 2,600).
She never netted that much in a week, practising dentistry!
Tomorrow, we will report on her results for today. Next Saturday, December 5, We will let you know how she made out at expiry date of this adventure.
We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.
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