Mon. August 15, 2022. How our fearless, intrepid investor made out recently and her plans for today

Like most “fun” portfolios, hers has not been much fun lately. That is true of most core portfolios as well. The majority of investors earn lower returns compared to the market’s average return.

But she is smart enough to keep it under 10% of her stock market investments.

Writing covered calls on Novavax (NVAX), she lost $US10,990.00.

Mistakes are practice shots if we learn something from them. What did she learn from her NVAX loss?

She was writing (selling) covered calls on NVAX on Mondays of each week with the expiry dates on Fridays of the same week and at a just out-of-the-money strike price.

That does produce the greatest premium income but with a 50% chance of being assigned on the Friday of that week. When assigned, the option seller is required to sell the related security at below market price. In order to stay in the game, the option seller now has to buy that security at an ever higher price.

As the market price of any security rises, intelligent investors are taking profits and selling rather than buying at higher prices.

On Friday, August 5, she was assigned on her NVAX holdings and received $US83,250.49 in cash.

Using that cash, she bought 300 shares of Intuitive Surgical (ISRG) at an average cost of $243.76 per share for a total cost of $73,128.00 ($243.76 times 300).

She then sold three covered call contracts, strike price $250.00, expiry date August 12. (C 12AUG22 250.00)

ISRG declined to $238.36 per share by  Friday, August 12, giving her a loss of $5.40  ($243.76 minus $238.36) per share for a total of $1,620.00 ($5.4o times 300).

She earned  $0.50 per share premium income for a total of $150.00 ($0.50 times 300) and she was not assigned. The percentage return works out to 0.002%($150.00 divided by $73,128.00) per week or 0.82% per month (0.002% times 4).

So, the annualized return is 9.85% (0.82% times 12). Safe, decent and guaranteed!

Yes, she did lose $1,470.00 ($1,620.00  minus the premium income of $150.00) but ISRG is a strong company regardless of the short-term fluctuations which will always be there.

What are her plans for today when the market opens at 9:30 AM?

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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