How to use derivatives as a source of added income. July 19, 2021

This is our weekly post dealing with derivatives (calls and puts). Over 80% of our members are interested in the subject. 

Here is how we stand now.

  • Last Monday, July 12, we sold 17 just out-of-the-money covered call contracts on Novavax (NVAX) expiry date Friday, July 16. (NVAX C 16JUL21 190.00 )
  • We received a premium  of $8,481.08. A bird in the hand, money in the bank!
  • With NVAX fluctuations, the losses on our shares this year once came to $91,467.99.
  • By the closing bell on Friday, July 16, the premium income that we received from selling just out-of-the-money  covered calls on NVAX each Monday, expiry date Friday of the same week, brought our losses down to $50,092.48. We carried out these transactions in our “fun” portfolio, which is not so much fun at this time.

When the market opens at 9:30 AM this morning, Monday, July 19,

we plan to sell 17 NVAX just out-of-the-money covered call contracts ($187.50) expiry date Friday, July 23  (NVAX C 23JUL21 187.50).

Based on the premiums available at the closing bell last Friday, July 16, we expect to get around $7 per share for a total of  about $11,900.00. A bird in the hand, money in the bank! I rarely netted that much in a whole week of practising dentistry.

What is the best that can happen?

NVAX market price remains about the same after Friday, July 16, or goes higher.

What is the worst that can happen?

NVAX market price drops significantly below our strike price by Friday, July 23, resulting in losses greater than the premium income received. That has happened annoyingly frequently.

With the habits of the Monday Morning program, luck hardly matters. Selling covered calls on individual securities ignores habit number 3, that is, buy the US market as a whole with no stock picking.

What we are doing here does require luck.

Remember what you see below.

  • Resulting from its involvement in derivatives, in 1994, California’s Orange County declared bankruptcy.
  • Resulting from its involvement in derivatives, in 1998, Long Term Capital Management needed a $3.6 billion bailout from 14 financial institutions to prevent market panic and collapse of the entire financial system.
  • Gambling with derivatives, many individual investors keep losing 100% of their money.


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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