Our September 28 post talked about the difficulty of generating income in today’s low-interest environment. We stated that some of our members and subscribers are generating income by selling puts and calls. Further, our October 1 survey indicated that 88.9% of our members would like to see posts dealing with puts and calls. This is an update on yesterday’s outcome.
When the market opened yesterday, the actual premium received for writing just out-of-the-money covered calls on NVAX, expiry date this coming Friday, was $2.65 per share. (C 16OCT20 113.00). Just in-the-money cash-secured puts yielded a similar amount.
A week ago on Monday (October 5) the premium for NVAX, puts and calls, expiry date Friday of the same week, was almost twice as high at $5.24 per share. Nevertheless, yesterday’s premium income of $265.00 per $11,300.00 invested works to 2.35% for the week. ($265.00 divided by $11,300.00 multiplied by 100)
This coming Friday, NVAX shares will sell either above or below our strike price. There is a 50% chance that NVAX will either be put to us or called away from us.
Additionally, there is no way of knowing where the stock will be at expiry date this coming Friday. Investors could easily have a loss on the overall transaction. However, we need to look at this approach as a money tree that grows and withers alternatively. The loss is something that we can ignore. It will recur regularly.
Note that the Monday Morning Program recommends passive investing — watching grass grow, watching paint dry. Selling puts and calls is NOT passive investing. However, our members with a moderate risk tolerance level have been doing it, often safely and successfully.
What is the worst that can happen from now until expiration date?