Getting familiar with options is one of my 2015 goals. I read and heard so many things about it. I just had to know how it works. Here is part 2 of the story.
After doing a lot of reading and thinking, early June I pulled the trigger and sold my first option. The options expired the third Friday of July. Here is what happened.
I first bought 100 RDS.A stocks at about 26,09. I wrote a covered call at 27, expiry on July 17. During then option lifetime, the stock flirted with the 27 strike price. It did not go over it, so I was not called away. Due to the Greek and Chinese troubles, the priced moved down again.
Two days before expiry, the Greek parliament approved the EU plans. When I read the news early in the morning , I started to question my position
- I expected a big price move up
- Would I be happy to be called away? NO! The dividend record date is less than a month away, and I wanted to figure out how all of this works in practice.
- How could I react? The option was only trading at 0,01. Not that much money to take my profit off the table and to keep the stock so I can see in detail the dividend cycle.
So, I decided to move ahead an placed an order to do a closing buy trade. I got filled soon after market opeing. After expenses of this trade, I kept 87pct of the trade max profit. (sounds enormous, but it is actually only 15,5 EUR)
Since then, I have been reading on the subject, and closing soon is actually a good practice: try not to be to greedy and take some decent profit and avoid some risk. Very often, it is combined with placing another trade so you can redeploy your assets and get some more credit (premium) paid. I did party one, not part two
As the stock did not jump up that high, It is a move I should not have done at all. With hindsight, I think I might actually do this again in the future, but for another reason: secure the profit, lower the risk and start the cycle again. As I write covered calls, I will try to figure out if it is a good thing to do or not. I plan to keep stats on the costs to close a position vs the extra time value I get compared to selling again after the expiration date. Sounds like a plan, now lets execute it.
I am still a rookie in options and still have a lot to learn. But it is a domain that has my interest. I will be exploring this further. As I want to combine it with DGI, I could have some unwanted side effects or even too low returns.
The other domain that I would like to explore is selling puts. Not sure when I get into that adventure
To be continued…