Daring member’s portfolio adventure. Good or bad? Followup 2


The Monday Morning Program recommends passive investing — watching grass grow, watching paint dry. What follows is decidedly NOT passive investing. It is an aggressive member‘s Novavax (NVAX) derivatives adventure with $500,000 worth of the stock. She started out with a loss of just over $200,000 as NVAX dropped from her acquisition price of $174.39 to $92.90 at the beginning of September. At that point, she bought more NVAX lowering her per share cost.

Writing covered calls on Mondays with expiry dates Fridays of the same week since the beginning of her NVAX derivatives adventure, she earned about $130,000, bringing her loss down to about $55,000.

You can see the entire story up to last Friday, September 18.

Based on this story, American investors can sell just in-the-money, cash-secured puts again.

Last Friday’s bid/ask range for just out-of-the-money covered call premiums or just in-the-money, cash-secured premiums were $5.25/$6.25. So, investors can expect to earn about $600.00 per contract. Our daring member will earn about $18,000, bringing her losses down to $37,000.

Canadian investors who are involved in this adventure were assigned again and find themselves in cash. In their tax-advantaged portfolios they will need to buy NVAX again at a higher price.

Is buying NVAX again at a higher price a problem?

Then, investors might ask why NVAX? Why not one of the ten most actively traded securities on the New York stock exchange? Here they are in order of volume:

1 Eastman Kodak Co.
2 General Electric Co.
3 Wells Fargo & Co.
4 PG&E Corp.
5 SPDR S&P 500 ETF Trust
6 Transocean Ltd.
7 Bank of America Corp.
8 Coty Inc. Cl A
9 Ford Motor Co.
10 Uber Technologies Inc.

All of  them have derivatives that trade weekly.

What are the premiums available to investors writing covered calls or cash-secured puts on these stocks?

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Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me