We previously stated that writing (selling) just out-of-the-money covered calls on Novavax (NVAX) on Mondays, expiry dates on Fridays of the same week, our fearless, intrepid investor lost $US10,990.00 in her “fun” portfolio over one year.
The risk in selling covered calls entirely comes from the market movement of the underlying security. When she owned NVAX, it dropped to a greater, far greater, extent than the premium income derived from selling covered calls on the security.
She ignored habit number three, which is to buy the American economy as a whole by using an exchange-traded fund that tracks the S&P 500. That means no picking individual stocks.
Additionally, she learned to write (sell) covered calls sufficiently out-of-the-money to earn about 1% per month or slightly more. That would significantly reduce the possibility of being assigned!
What will did she do when the NYSE opened at 9:30 AM today?
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