How to use derivatives as a source of added income. July 28, 2021

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

We normally publish these posts on Mondays, but due to a computer glitch, this week’s post is going out today, Wednesday, July 28. If you are interested, you can still carry out the action described below and earn premium income today, Thursday and Friday.

Here is how we stand now.

Last Monday, July 19, we sold 17 just out-of-the-money covered call contracts ($192.50) on Novavax (NVAX) expiry date Friday, July 23. (NVAX C 23JUL21 192.50 )

We received a premium  of $12,420.69. 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 23, 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 $37,671.79. We carried out these transactions in our “fun” portfolio, which is not so much fun at this time.

When the market opened at 9:30 AM on Monday, July 26,

we bought 1,700 shares of NVAX at the market since we were assigned and our shares were called away on Friday, July 23.

Then, we will sold 17 just out-of-the-money covered call contracts ($205.00) expiry date Friday, July 30  (NVAX C 30JUL21 205.00)

We received a premium of $10,933.70 which still allowed three dollars per share for growth. A bird in the hand, money in the bank! When I was practising dentistry, I rarely netted that kind of money in one week.

What is the best that can happen?

NVAX market price remains about the same after Friday, July 30, or goes higher.

What is the worst that can happen?

NVAX market price drops significantly below our strike price by Friday, July 30, 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.

With what we are doing here, luck matters.

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