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

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

In our “fun” portfolio (value about $314,000.00), every Monday, Rosi and I have been writing covered calls on Novavax (NVAX), expiry date on Friday of the same week, strike price just out-of-the-money or further out-of-the-money to benefit from growth of NVAX if there was to be any.

When the market opened at 9:30 AM on Monday, June 21, Rosi and I wrote (sold) 18 just out-of-the-money covered call contracts on the 1,800 shares of Novavax (NVAX), which we held in our “fun” portfolio, expiry date, Friday, June 25 (C 25JUN21 177.50).  We received $10,566.00. Before breakfast! Bird in the hand, money in the bank! I rarely netted that much in a full week of work when I was in dental practice.

NVAX rose above our strike price and our shares were called away.

To stay in the game, on Sunday, June 27, we placed a market order for 1,800 shares of NVAX, albeit at a higher price.

Two important points here.

  1. Placing market orders is convenient and can be done at any time, including Sundays. Such orders are filled when the markets open.  Investors should place market orders only on securities which have large trading volumes such as NVAX; otherwise they will face large bid/ask spreads and their orders will be filled unfavourably.
  2. Many investors do not like to be assigned. Paying a higher price and committing more money for a security in order to stay in the game is actually good if the premium returns are high. Invest more money when the returns are high. Still, many investors get frustrated with “what could have been”.

Several times, NVAX shares dropped by more than the premiums which received and at one time our losses totalled  $91,467.99. “Fun” portfolio, not much fun.

This year to-date, we have made $59,641.81 selling NVAX covered calls in our “fun” portfolio. Our losses now stand at $31,826.18 ($91,467.99 minus the gains of  $59,641.81).

You can take a closer look at the recent history of our fun portfolio.

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.

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

Good luck to those who use derivatives as a source of added income!


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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