The market has about 45 minutes to go and I just made a trade. I sold a call on a company called Puda Coal (ticker PUDA). This is NOT a covered call, it is a naked call. VERY DANGEROUS! When you do a covered call you own a stock and you sell a call option against it. If at expiration date you have to deliver the stock, you own it to deliver it. With a naked call, if you have to deliver the stock you first have to buy it and the price might be much higher than the strike price. If the stock is at 10 and you sell a naked call with the strike price of 10 and at expiration date the price of the stock is 15, you have to buy the stock at 15 and deliver it at 10. You would lose 5 points. In that same scenario, if you first own the stock at 10 then sell the covered call and the stock goes to 15, you deliver the stock at 10 and you bought it at 10, no loss. This is very important. If you don't understand please e-mail me and I will explain it in more detail........ Back to my trade. I sold a naked call on PUDA. I sold 10 contracts of the May $10 call and received .60. On 10 contracts that is $600. If I bought the stock at $9.77, the current price, that would be 12.2% on margin. That is a great deal for less then a month. The yearly yield would be 146.4%. I sold it naked because the stock went down the last two days and I feel the stock might continue going down. When I sold the call the stock was at 9.77. If the stock does continue to go south and on expiration it is, lets say $7. I do not have to deal with a stock that is $2.77 below where I bought it. I keep my premium, deal over and I move on. I did protect myself in case the stock goes up. I put a "buy stop order" on the stock at $9.95 and I put it GTC (good till cancelled). What this does is stops and buys the stock at $9.95 so the stock will not go any higher without me owning it. So if the stock does goes up I will own it before it gets higher then the strike price. Then I will remove the GTC on expiration date. This is a great tool for protection. If I didn't put the "buy stop order" on I would put a "RISK FACTOR" of 4 on this trade but with the "buy stop order" I put a RISK FACTOR" of 1. Big deference. If this stock does go up and I buy it I will let you know. I will edit this post and add it in and also I will add it to the post of that day........I just made a trade, possibly taught you something and made $600. I think I'll shut down and go out to dinner.
The Coach
It is now Monday May 3rd. The trade I made above has been completed and I am editing my post as I said I would. I sold a naked call on PUDA and put a "buy stop order" on the stock. I did not want the stock going above $10 while I was naked. Now that the stock is above 10 I own it so I can deliver the stock if on expiration day (May 22nd.) the stock gets assigned. Today I will put a "sell stop order" on the stock because if it goes down I don't want to own it below $10.
Welcome to the “Main Street beats Wall Street”. This blog is for the stock investor/trader with experience in trading options. It can also be helpful for the ones with no experience with options who want to learn how options can be used to pursue your trading goals. As time goes on “Main Street beats Wall Street” will be giving many lessons from “Getting started” to you making your first trade. I also have an e-mail for any questions you might have from a lesson or a trade I posted,coachsjc@gmail.com. On “Main Street beats Wall Street”, I (the Coach) will post every trade I make. In recent years I've had years with over 400 trades. I will not post last years or last month’s trades, or hypothetical trades. ONLY REAL TRADES! I will post a trade when I get into a position and I will post the trade when I get out of that position. Along with my trade I will post my “RISK FACTOR”. The risk of my trade will be rated from 1 to 5, 1 being a low risk trade and 5 being a high risk trade. You will see if I get out making money or get out losing money. No Hoopla. “Main Street beats Wall Street” will show you how the people who live on Main Street throughout this country can be as good as the people who work on Wall Street. This blog is totally free, I am not selling books or tapes. I am only having fun and staying involved in something I love, the stock market. I make my money buying and selling stocks and options. If you put in a little time you too can make money; enough money to change your life forever.
T
