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Buy Call MSOS

May 15, 2024
Roll Existing Position: Against MSOS Stock, Buy Back the May 10 Call and Sell the June 10 Call (exp. 6/21).

Our MSOS position is working very well as the stock has been chopping around for weeks while the May 10 call that we sold for $0.53 slowly loses value. This is the ideal situation for a covered call.

Today, let’s buy back that May 10 call for $0.15 (approximately), so we can then sell the June 10 call for $0.70 (approximately).

The reason I am closing this trade today is news could break at any time from our friends in Washington, D.C., which could trigger a stock move in either direction. And because of that “risk” I am not going to chase the last $0.15 in the May call.

To execute this trade you need to:

Buy to Close the MSOS May 10 Call

Then

Sell to Open the June 10 Call

After this trade our position will be:

Long MSOS Stock

Short MSOS June 10 Call

After this adjustment our breakeven on our trade will drop to $8.70 (approximately).

May 2, 2024
Covered Call: Buy AdvisorShares Marijuana ETF (MSOS) Stock and Sell the May 10 Calls (exp. 5/17) for a net price of $9.40 or less.

On Wednesday the DEA supported a recommendation to reclassify marijuana as a less dangerous drug. This is potentially a giant step for marijuana companies and their stocks.

In reaction to that news, the AdvisorShares Marijuana ETF (MSOS) rallied 22% on Wednesday but then gave up half of those gains yesterday. This wild action made the price of options very expensive, and today we are going to sell that expensive volatility via a covered call.

To execute this trade you need to:

Buy MSOS Stock

Sell to Open the MSOS May 10 Call

For example, you could buy the MSOS at 10, and sell the May 10 call for $0.60, which equals 9.40. Of note, MSOS will be moving violently, so the important component of this trade is the stock price minus the call sale equals 9.40 or less.

The most you can make on this trade is $60 per covered call, or a yield of 6.38% in two weeks’ time should the MSOS close above 10 on May expiration.

The breakeven on this trade is at 9.40

The most you can lose on this trade is $940 per covered call if the MSOS were to go to zero.

Stepping back, this trade will almost surely have its ups and downs as the sector is wild. And because of that, we won’t get too worked up if the stock falls or rises day to day.

That being said, I like the big premium we are capturing via this covered call, and with the market mostly chopping around, another short volatility trade fits the market and our portfolio perfectly.

Position
MSOS May 10 Call
Position Strategy
Buy Call
Opened Date
May 2, 2024
Expiration
May 17, 2024
Net Price
9.40
Strike
10
Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.