December Expiration
Tomorrow is the expiration of our December covered calls, and I’m not going to sugar coat it—this month has not been kind to our stocks/trades. As @StockCats sarcastically said on Twitter, “It’s a stock picker’s market as long as you only pick the 7 stocks holding up the indexes.”
And while the indexes are mostly 3-4% off their all-time highs, under the surface there has been a crash in growth stocks, and the selling has gradually moved to more and more stocks and sectors.
Because of this selling pressure we were stopped out of our ZI and CWH trades on Tuesday. As for our two remaining positions that expire tomorrow (MRVL, GT), we are going to let them play out, and then we will revisit these trades on Monday/Tuesday next week.
Let’s begin with our Marvell (MRVL) covered call. Initially, we bought the stock for 69.5 and sold the December 70 call for $3.40.
Today the stock is trading at 84.5, and my plan is to simply let this position play itself out as it’s very likely the stock will close above our short strike tomorrow. If that is the case, we will walk away with a $390 profit, or a yield of 5.9%.
Moving on to Goodyear Tire (GT), last month we bought stock at 22.93 and sold the December 23 call for $1.17.
Today the stock is trading at 20. My plan is to simply let this position play itself out.
I expect GT will close below the 23 strike we are short, which means the call we sold will expire worthless, and then Monday/Tuesday we will decide if we want to sell a new call, or simply move on from the position.
Stepping back to the market and covered calls …
The downside to this market mess is that we got hit on several positions this month. The upside is option volatility is spiking, which means the calls we will be selling in the coming weeks are getting more and more expensive.
Though of note, until I see some improvement in the market, we will be selling in-the-money calls which will give us a greater cushion.