Weekly Option Trades (Apr 22-26, 2024)

Cashflow of $880 with option trades on RIOT and TSLA

Disclaimer:

The information provided in this newsletter is for educational and informational purposes only and should not be construed as financial advice or as a recommendation for any specific security or trading strategy. My assumptions and observations were only valid at the time of trade execution and, for this reason, the trades described in the newsletter should not be mirrored. I share my trades and the rationale behind them exclusively for the purpose of teaching technical analysis and option trading techniques. Investing and trading involves risk of loss. Past results are not necessarily indicative of future results. You are responsible for your financial well-being, and I bear no responsibility for any consequences of your actions based on the information I provide. The decision to invest or trade is for the Reader alone and the use of the information in this newsletter is at your own risk. You should never make an investment decision without consulting your financial adviser and conducting your own investment research and due diligence.

Summary:

It’s been a ‘lighter-than-usual’ trading week for me, as stocks rebounded strongly this week, partly driven by strong earnings reports from Microsoft and Google. It was a good week to sell-to-open (STO) new covered calls for improved premiums against existing shares in my portfolio. The open cash-secured puts in my portfolio are either out-of-the-money (OTM) or at-the-money (ATM) and I’m monitoring them closely to either close them out early to lock in profits, to let them expire worthless for maximum profits, or to roll them out (and the strike price potentially down) to the following month. Keep in mind that next week we’ll get the next Fed rate decision/guidance and we can expect some volatility.

I executed the following option trades during the week of Apr 22-26, 2024:

Trade 1

On Apr 22, 2024, I sold to open (STO) 10 RIOT covered calls against 1,000 existing shares in my portfolio expiring on May 17th, 2024 at a strike price of $16 for $0.31 per share and received $310 for these 10 contracts ($31/contract), minus fees and commissions.

STO 10 RIOT 05/17/2024 $16 covered calls ($0.31/share)

Note (1): I already owned these 1,000 shares of RIOT, I did not purchase the shares for this trade.

Note (2): The $16 strike price matches my average purchase price for these 1,000 shares.

Motivation:

• Reminder: I already owned these 1,000 shares of RIOT, purchased for $16
• Reminder: The previous 10 covered calls against these shares expired worthless on Apr 19, 2024
• I took advantage of the strong price action on this day to sell new covered calls (the call premium is higher when stocks move higher).
• Given that RIOT moved up almost $4 in the last 3 trading sessions, I didn't want to select a strike price below my purchase price (risk of capital loss).
• Instead, I simply picked the purchase price as the strike price, to avoid risking capital losses. RIOT, like other bitcoin miners, can move very quickly at times. So this trade was not driven by technical analysis.
• The strike price had a delta of < 0.2 ("20 Delta") at the time of trade execution, so there was a larger than 80% probability that the calls will expire worthless.
• Should the share price continue to move higher and approach the strike price, I will consider to roll the calls out and potentially the strike price up, if the net credit for rolling is attractive.
• Should the shares get called away from me, I'd be fine with that, as the strike price matches the purchase price and all the premiums received to-date would be profit.
• I recommend to only consider investing in RIOT if you are bullish on Bitcoin and you don’t mind owning Bitcoin mining companies longer term. Bitcoin and the miners are very volatile with large price movements in either direction.

Trade 2

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