Tomorrow is the expiration of May options, and it’s been a spectacular month for our covered call strategy. We have six positions that will expire tomorrow and I will break down each below. One will need action (CHWY), while most others will expire for full profits tomorrow and we will not need to adjust.
The only position we will adjust today is Chewy (CHWY). To recap, we bought stock at 42.65 and sold the May 43 call for $3.20. Today, just one day before expiration the stock is trading at 41.5 and the May 43 call is worth $0.35.
My recommendation is that we Buy to Close the May 43 Call for $0.35, and Sell to Open the June 43 call (exp. 6/19) for $3. This will drop our net price on this trade to 36.8.
Moving on to our other positions that we will NOT need to adjust …
The Morgan Stanley (MS) May 44 calls that we sold for $0.65 will expire worthless. Much like in the past I will likely wait for MS to rebound further before selling a new call. You will not need to address this position.
We have owned a Datadog (DDOG) covered call since early March and have sold two sets of calls. To recap, we originally bought the stock at 43.7, and sold the April 43 call for $4.30. That call expired worthless, and then we sold the May 43 call for $2.85. Net/net between both calls sold we collected $715 per covered call.
DDOG is trading well above the 43 strike today and unless the stock drops dramatically we will not need to adjust this position and we will be left without a stock or option position Monday morning, and will have a profit of 16.37% in two month’s time.
JD.com (JD) will report earnings tomorrow before the open. Today the stock is trading at 48, which is $7 above our short strike price. Unless the stock drops dramatically tomorrow on earnings, we will walk away with our profit of $300 per covered call executed, or a yield of 7.89% in just over one month’s time.
Barrick Gold (GOLD) is trading $8 above our short strike price. Unless the stock drops dramatically tomorrow, we will walk away with our profit of $171 per covered call executed, or a yield of 9.89% in just over one month’s time.
Sprouts Farmers Market (SFM) is trading $5 above our short strike price. Unless the stock drops dramatically tomorrow, we will walk away with our profit of $165 per covered call executed, or a yield of 8.99% in just over one month’s time.
I got a great question from a Profit Booster subscriber about his desire to continue to hold on to his shares of DDOG that I wanted to share with the bigger group. Here is that question …
“I bought 10 shares of DDOG $38. And I sold the call option for May at $43 for $2.85. I am not sure what happens tomorrow at the expiration date. Will someone take 100 shares at $43?
Now that the stock has risen so far it would be nice to hold onto those hundred shares if possible.”
And here is my response …
“If you do nothing, then yes, your 100 shares will be taken away from you at 43 tomorrow. Though that won’t be the worst scenario as you will have made $500 on the stock rising from 38 to 43, plus you will have collected the $285 from the call sale, or a net of $785 in a month and change.
However, if you would prefer to keep your 100 shares you need to Buy to Close the option you are short by the close of trade tomorrow. At that point you can sell a new call (perhaps in June) to collect even more premium.”