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Tues. July 5, 2022. How our fearless, intrepid investor made out recently and her plans for today

For several weeks now, Novavax (NVAX) dropped by more than the premium income our fearless, intrepid investor received for an overall loss in her “fun” portfolio. On Friday, June 3, NVAX rose above her strike price and she was assigned.

To stay in the covered call game, on Monday, June 6, she bought the 2,500 shares of NVAX at $47.14 per share for a total of $117,850.00. Things went along nicely, she wrote covered calls far enough out-of-the-money to avoid being assigned.

On June 20,  she sold 10 covered call contracts on Novavax (NVAX) at a strike price of $48, expiry date July 1. (C 01JUL22 48.00).

Later that day, she also sold 15  covered call contracts on Novavax (NVAX) at a strike price of $US52, expiry date expiry date July 1. (C 01JUL22 52).

These two positions gave her $12,550 immediate premium income regardless of what the NVAX shares did.

NVAX shares rose above her strike price and she was assigned. On the 10 contracts she earned $860.00. ($48.00 minus $47.14 times 1,000)

On the 15 contracts she earned $7,290. ($52.00 minus $47.14 times 1,500)

Her total earnings from writing the 25 covered calls on NVAX came to $20,700.00. ($12,550 immediate premium income plus $860.00 plus $7,290.00)

Over the last few weeks, her “fun” portfolio has grown mainly because of luck and not skill.

What are her plans  for the $20,700.00 today when the market opens at 9:30 AM? (Monday, July 4, is a market holiday.)

What is the worst that can happen?

What is the best that can happen?

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Derivatives note, July 3, 2022. How to minimize the risk of assignment

We should only sell (only sell and never buy) derivatives (puts and calls) in our “fun” portfolio. Doing so invites a level of risk inappropriate for our core portfolio.

Social Sciences Research Network (SSRN)  is an outstanding source of academic, evidence-based information. The SSRN economic papers are difficult for the layperson to understand, but the abstracts are manageable.

Some examples follow.

Covered Calls Uncovered

Covered Call Strategies: One Fact and Eight Myths

We present greatly simplified ideas which have been used by us at Monday Morning Millionaire.
Today’s post discusses how to minimize the risk of being assigned.
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Interest in derivatives. Update on May 28, 2021 survey results

Greetings everyone,

First, a sincere thanks to all of you who gifted memberships and one-hour sessions to friends and relatives. A more useful gift would be difficult to find.

Next, we think all of you who took the time to respond to our surveys.

In May, 2021, we asked our members and subscribers to what extent they were interested in derivatives (calls and puts).

We conducted a similar survey recently. You can see the results below. They are almost identical to the May, 2021 survey.

Choice

May, 2021

Percentage

June, 2022

Percentage

I regularly write calls and puts.

31.6%

28.6%

I am interested in calls and puts but need to know more.

52.6%

53.6%

I am not interested in calls and puts.

7.9%

7.1%

I used to write calls and puts but no longer do so.

7.9%

10.7%

Below, you can see our response to relevant comments. ___________________________________

Comment

Writing calls and puts should be done in a “fun” portfolio only. 

Our response

We agree. Occasionally, with luck, we will stumble across a safe, worthwhile derivatives experience in our “fun” portfolio. We can then do some of that in our core portfolio.

___________________________________

Comment

More about on step by step of when and how to do it. More homework based on do-it-yourself approach.

Our response

We will have something useful and to the point on most Mondays.

___________________________________

Comment

I have written calls and puts but have  difficulty understanding how productive they are compared to if they were not used.

Our response

As we frequently state, luck hardly matters with the habits of the Monday Morning Program. Except on rare occasions, writing derivatives does require luck.

Investors with a long-term mindset can do very well without writing derivatives.

___________________________________

Comment

Still not sure how to make money using covered calls.  Would like to learn how one does it.

Our response

We will publish condensed versions of Social Sciences Research Network articles dealing with this issue.

___________________________________

Comment

Who made you think of this survey?

Our response

Former ODA president (1970 – 1971) Ivan Hrabowsky made me think of it. On 2022-08-02 Ivan will be 91 years old.  He likes stimulating discussion.

___________________________________

Comment

I am interested in the process, but as I have said, ‘I am a poor gambler’.

Our response

Our posts on this subject will require minimal gambling.

___________________________________

Comment

These derivatives add to returns if used prudently.

Our response

We fully agree with your comments. Acting prudently applies to all investing. Investing of any kind always involves risks, but if the benefits exceed the risks, we will come out ahead most of the time, but not all the time.

___________________________________

Comment

Sure, you always make money when you sell calls. But if the security is called away and you are staying with the same security (e.g. SPY) you will have to buy the shares back at a higher price before selling calls again. If the premium received does not cover the difference between the old share and new share cost there is no profit made in this transaction. This can happen frequently. You are trying to predict the market in a short time interval (weekly) which is akin to gambling.

Our response

Your comments are spot on!

We will review evidence–based methods to lower (but not eliminate) all risk.

___________________________________

 

 

 

 

The Motley Fool on asset allocation

Several of our members are enthusiastic about the Motley Fool.

You can see the Motley Fool take on asset allocation below the line, precisely as they updated it on Jul 17, 2021.

Respected investment experts agree that asset allocation is the most critical consideration for portfolio performance. Quoting David Swensen “…asset allocation accounts for the largest share of portfolio returns.”

At over 1500 words, the Motley Fool article is far more complicated than it needs to be. During the second world war, Winston Churchill stated that he did not want to see any reports longer than one page.

We are publishing the Motley Fool article to serve as a reference point. At the Monday Morning Program, we focus on concise, evidence-based, actionable articles. Winston Churchill would approve. 

We will publish our treatment of asset allocation soon. It will have fewer than 500 words.

_____________________________________________________

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Correction to Mon. June 27, 2022 fearless, intrepid investor activities

Yesterday’s post was completely incorrect. My apologies.

On June 20, our fearless, intrepid investor DID NOT SELL ten covered call contracts on Novavax (NVAX) at a strike price of $US48, expiry date Friday of the same week, that is, June 24. (C 24JUN22 48.00) as we stated.

Nor did she sell 15  covered call contracts on Novavax (NVAX) at a strike price of $US52, expiry date Friday of the same week, that is, June 24. (C 24JUN22 52).

She actually sold 10 covered call contracts on Novavax (NVAX) at a strike price of $48, expiry date FRIDAY, JULY 1 and not June 24.  (C 01JUL22 48.00).

She also sold 15  covered call contracts on Novavax (NVAX) at a strike price of $US52, expiry date FRIDAY, JULY 1 and not June 24. (C 01JUL22 52).

These two positions will give her $12,550 immediate premium income regardless of what the NVAX shares do. (The value of her NVAX shares is about $US135,000.00.)

For several weeks now, NVAX has dropped by more than the premium income she received for an overall loss in her “fun” portfolio.

As we frequently state, luck hardly matters with the habits of the Monday Morning Program. Writing covered calls does require luck. Last week, she was lucky! NVAX rose enough for her to buy 200 more shares of NVAX.

What is the worst that can happen?

What is the best that can happen?

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Mon. June 27, 2022. How our fearless, intrepid investor made out recently and her plans for today

Last Monday, June 20, our fearless, intrepid investor sold ten covered call contracts on Novavax (NVAX) at a strike price of $48, expiry date Friday of the same week, that is, June 24. (C 24JUN22 48.00).

She also sold 15  covered call contracts on Novavax (NVAX) at a strike price of $52, expiry date Friday of the same week, that is, June 24. (C 24JUN22 52).

She earned immediate premium income in addition to the amount of the out-of-the-money strike price.

We will have details tomorrow, Tuesday, June 28.

So, what are her plans for today (June 27) when the market opens at 9:30 AM?

What is the worst that can happen?

What is the best that can happen?

Over the last few weeks, her “fun” portfolio has grown mainly because of luck and not skill.

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How to prosper using index funds

Since half of all investors involved in any securities transaction are wrong, the Monday Morning Program discourages stock-picking and favours buying shares in the American economy, one of the strongest in history. Investors can do that by acquiring an exchange-traded fund that tracks the S&P 500 .

Nevertheless, we should all know about Seeking Alpha. It is an impressive organization even though it is heavily into stock-picking.

One of our members recently recommended a Seeking Alpha article titled Using Index Funds for Diversification. It is by Daniel Price, CFA, and a summary follows:

  • Diversification helps investors to navigate fast-changing markets and stay the course to pursue their financial goals.
  • Recent stock market volatility has proven why diversification is important and can help reduce risk in portfolios.
  • Despite this wild ride, over the last five years, patient investors have been rewarded as U.S. stock indexes have risen over 80%.

From the above, one would think that Seeking Alpha is a Monday Morning member.

With the habits of the Monday Morning Program, luck hardly matters.

Good luck!

 

 

Investors face a 50% chance of an accident. How to avoid it and how to prosper

Who would drive knowing that there is a 50% chance of an accident?

Investors buying or selling an individual security, face exactly that.

If the security goes up in value, the buyer is right and the seller is wrong. If the security drops in value, the buyer is wrong and the seller is right. They cannot both be right.

In any investment transaction, past or future, investors face a 50% chance of being wrong.

That is why the Monday Morning Program recommends buying shares of the entire US economy as represented by an exchange-traded fund which tracks the S&P 500. The latter is an excellent approximation of the US economy, one of the strongest in history. No stock-picking (except in your “fun” portfolio).

All the mistakes that any investor ever made or will make in the future arise from ignoring one or more of the six habits which we promote.

Don’t go there (except in your “fun” portfolio).

With the habits of the Monday Morning Program, luck hardly matters.

Good luck!

Who is most vulnerable to climate change health damage? June 17, 2022 Survey results

First, a thank you to all who gifted a membership or a one-on-one zoom meeting to friends and relatives. We think that they make ideal gifts. Consider it.

Next, yesterday it was a market holiday so, for yesterday’s post, go here.

And now, our sincere gratitude to all members who took the time to respond to our Friday, June 17, survey about the effect of climate change on health. Time is an irreplaceable resource. We appreciate your involvement.

You can see our survey results below.

In your opinion, who is most vulnerable to climate change health damage?

We all are.

47.6%

The elderly and young children are most at risk.

9.5%

People in developing countries are more at risk than people in Canada and the United States.

42.9%

You can you read some worthwhile comments below.

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Mon. June 20, 2022. How our fearless, intrepid investor made out recently and her plans for today

Last Monday, June 13, our fearless, intrepid investor sold 23 covered call contracts on Novavax (NVAX) at a strike price of $40, expiry date Friday of the same week, June 17. (C 17JUN22 40.00) NVAX was trading at $36.50.

She received $US2,309.03 in premium income allowing $3.50 per share growth if there was to be any.

That $US2,309.03 was immediate money in the bank regardless of what NVAX did over the course of the week.

For several weeks now, NVAX has dropped by more than the premium income she received for an overall loss in her “fun” portfolio.

As we frequently state, with the habits of the Monday Morning Program, luck hardly matters. Writing covered calls does require luck. Last week, she was lucky! NVAX rose to $40.24 and she collected $US8,050.00 ($US3.50 times 2,300) from NVAX growth in addition to the $US2,309.03 in premium income for a total of $US10,359.03 ($US8,050.00  plus $US2,309.03).

When she was in practice, she would have considered that to be an exceptionally good week’s income. Writing the 23 covered call contract on NVAX, she earned that before breakfast last Monday morning, June 13.

Of course, she was assigned having written the 23 covered call contract at a strike price of $US.40.00.

So, what are her plans for today when the market opens at 9:30 AM?

What is the worst that can happen?

What is the best that can happen?

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