24 April, 2023 seen 29Covered call writing is a popular investment strategy used by many investors to generate income on their existing stock…
On May 1, 2020, I bought 110 shares of GPS, paying $7.585 per share. GPS is the ticker name of the Gap, Inc., commonly known as Gap Inc. or Gap, an American worldwide clothing and accessories retailer.
GPS has been on my radar since the end of the March when I sold a ratio back spreads on it in the hopes of an explosion in price, to make me a quick buck. As the explosion didn't happen and my ratio back spread contracts come to maturity in May I decided to take a little risk and buy some shares to sell a covered call against them.
Here is the setup:
- BOT 110 GPS Stock 7.585 USD
- SLD 1 GPS MAY 08 '20 8 Call Option 0.22 USD
Potential income return 8.37% in 7 days
If the stock will trade above $8.00 on the expiry day - very well, I realize my max gain, 100 shares get called away. I keep 10 shares for memory or seed for the future buys
If trades in between $7.365-$8.00, this option contract expires worthless and I keep selling more covered calls
If trades below $7.365 - my max loss, in such a scenario I will most probably double up to lower the cost basis and keep selling more covered calls.
Selling covered calls with GPS