CMA - Covered Call - Update 2024-06-01 - Closed

The Trade

The market action Friday afternoon did surprise me. At around 20 min before closing the market ripped to the upside. Not that I am complaining, but that does not happen a lot. 

Over lunch I looked at my CMA trade. My short call was still costing to much to buy back the contract. I decided to let it expire worthless. So was the plan. Monday lunch time I would sell another call.  I was even tempted to sell a call on Friday and still let the existing one on. That means, I would only have 100 shares to cover 1 of the contracts and would have to buy 100 more shares on the open market to cover the other call. That would be a potential automatic loss. 

Remember: With selling a call, I am obligated to sell shares at the price defined in the contract. Where the shares are coming from and how much I paid for them, does not matter for the contract. 
So if I bought 100 shares for $50.58 and sell them for $51.00 I made money on the shares and I get to keep the money from the contract. Now if I sell a second contract at the same time for a later point in time, I may no longer have the shares and may have to buy them on the open market to cover my obligation. 

Now, the stock closed at $51.24 on Friday. That means I had to sell my shares at $51.00. Yes, I lost out on the other 24c a share, but they were never part of my plan. 

I bought 100 shares at $50.58. I sold this week Fridays (May 31) 51 Call for 55 cents. I got called out, tI had to sell my shares at $51. I get to keep the gain of 42c a share and the 55c from the short call. 42+55 = $0.97/50.58=1.91% ROI.
As a call requires 100 shares, I made 97$ in 1 week on a $5,058 investment. Now, this will not happen every week and stocks can go down to 0. 
The money is back in my account. I can look for the next trade.

Disclosure

I have been beneficially long the shares in CMA and short the call in CMA. I wrote this article myself and it expresses my own views and opinions. I am not receiving any compensation for this. I have no business relation ship with any company whose stock is mentioned in this article.

I am not an investment advisor or professional. This article is my personal opinion and experience and is not meant to be a recommendation of the purchase or sale of a stock or option. Investors should conduct their own research before investing to see if the companies discussed in this article fit into their portfolio parameters.