With a few extra dollars in the Money Tree blog account, a recent covered call strategy earns 14% in a quick 9 days. I decided to put the extra ~$400 sitting in the Ally savings account to work in another way, this time through a covered call, here are the details…
Covered Call Details
Looking to take advantage of the time decay of call options, I went to covered call screener at barchart.com. This screener provides a list of some good ideas to capture a quick profit if you don’t expect the price to move significantly, specifically lower, for any security. During the end of Feb, the screener returned a short term idea with a company called Ocugen (OCGN). I decided to enter in a buy-write trade which does two trades at one price. On Feb 23, I bought 100 shares of OCGN for $826 and sold 1 call option (March 2021 5.00 Strike) at $405.45 for a total net debit of $420.55 or $4.21 per share. At the time, OCGN was trading around $9/share after a pop from some good news. So this is a deep-in-the-money covered call strategy with about 40% protection. My goal was to keep the price above $5 to have the option exercise and gain the $80 if kept until expiration.
Results
Upon entering the OCGN covered call strategy, I added it to my daily watch list of tickers. Over the first few days, the price action was volatile but still keeping above $8. On March 4th, I was able to sell for a Net Credit of $479.45 which was most of the profit opportunity. In those quick 9 days, I was able to capture a realized gain of $58.90 or 14% when closing out that position. Not bad for a little over a week and also returning much more than sitting in the Ally savings account at 0.50% per year.
Next Covered Call trade
Since that first trade was successful, I decided to look for another covered call opportunity and put the $480 to work….this time, I decided to go with a company named Ebang International Holdings (EBON). On March 15th, I entered into a EBON April 2021 covered call strategy for $475.55 at a strike price of $5.00. Not as much profit potential with this recent trade since the max profit will be $24.45 but still will yield a great APR for the short term
In summary, I see myself as a long term value investor but do like to take advantage of some short term yield performance….clearly all for the right level of risk.
Disclaimer
At the time of writing this blog post, the author is long shares of EBON via a covered call strategy. This post is purely for educational purposes and each investor should do their own due diligence.
I am a finance professional with over 20 years of experience and very passionate about all topics related to finance; enjoying the aspect of teaching and educating others along the way. All in all, I will show you how big this money tree can get over time as I get the branches (Earn, Save, Invest) as high as possible…Click here to see my financial progress to date: How high is the Money Tree?
