When the market opens at 9:30 AM today, April 19, 2020

I promised to report the final outcome of our Monday Morning, April 12, covered call sales on NVAX and SPY on Saturday, April 17. I overlooked it and I apologize.

The bottom line is that we made more money than I ever did in my best two weeks practising dentistry.

The Monday Morning program does not recommend that members get involved with options unless they’re comfortable with the idea. Members can do very well only practising the six habits which we promote.

Invest to the sleeping point.

Rosi and I are comfortable with options. Our core portfolios hold only 50% SPY and 50% money market (TDB166). Our “fun” portfolio holds NVAX, among other securities.

Last Friday, April 16, we were assigned on both of our positions on  SPDR S&P 500 ETF Trust (SPY) and Novavax (NVAX). Over the weekend, we placed market orders to buy back an equal number of shares of each of these. That will allow us to sell covered calls on them when the market opens at 9:30 AM today.

Two issues here.

First, placing market orders can be dangerous. Buy or sell market orders can be filled at a price that is vastly different from the one which investors expect. Limit orders can avoid that risk. There is no such risk if we are dealing with very widely traded securities such as SPY and NVAX.

Second, we will be buying both securities at a higher price – the opposite of buy low and sell high, the fourth habit of Monday Morning members. Note however, that when returns are high, investors would want to put more rather than less money into a security. This is an exception to the rule.

Our buy orders will be executed within seconds of the market opening. That will allow us to sell covered calls on SPY and NVAX, expiry date this coming Friday, April 23, 2021. Thales’s success story notwithstanding, our members should only sell and never buy options.

Selling just out-of-the-money covered calls gives investors the best premiums. In return, however,  investors give up any growth which might take place in the price of the security. If we expect growth, we can sell covered calls a little farther out of the money. That allows us to benefit from growth in addition to the premium income which decreases the further out of the money we go.

The charts below show both SPY and NVAX prices rising on rising volume. No indicator works all the time but rising prices on rising volume strongly indicate that the trend will continue. The trend is your friend (until it isn’t).

We will write covered calls on our NVAX holdings at $240.00. This will allow us to benefit from $12.50 per share growth if there is any, expiry date this coming Friday, April 23 (NVAX C 23APR21 240.00).

We will also write covered calls on our SPY holdings at $420.00. This will allow us to benefit from $2.00 per share growth if there is any expiry date this coming Friday, April 23  (SPY C 23APR21 420.00).

SPY has three expiry dates each week. Getting involved with the Monday and Wednesday expiry dates is of no significant benefit over selecting the Friday of the same week.

Contact me if you want an explanation or any of the above. (milan@drmilan.com)