Last week, I mentioned that I planned to close my WMT position consisting of 100 shares of WMT and one out of the money covered call. I entered a limit order at the end of the week to sell my shares and buy my covered call when the time value dropped more. I didn’t expect the value of WMT to rise much this week before the option expired so I short changed myself a little for what I could’ve earned – maybe. Right at the beginning of trading, my order hit and I sold 100 shares of WMT for $83.91 and bought to close one WMT May $87.50 covered call for $0.96. I received $8,295.14 after paying $1.99 in commission.

WMT made it as high as $84.79 before cooling off some into the close to finish the day up $0.95 from the previous close. I really don’t like that I paid $0.96 for a covered call that was more than $3.50 out of the money with only five days left on its life. That’s the risk of placing a limit order like this one. In hindsight, I should’ve just waited out the week, but my fear was that the share price would keep dropping and I’d end up with even less. That’s investing though. You never really know what’s going to happen the next day and can only work with the knowledge you have.

As I write this update after hours, the bid/ask for the same trade is $83.39/83.46, above the $82.95 I sold the combo for. $45-50 is not enough to be upset about. It’s the potential of where WMT could go the rest of the week that is making me second guess my trade. Even if WMT stays flat from here, I paid $96, plus commission, for something I probably didn’t need to. More than worry about the price I sold at today, the real mistake was not getting out earlier when WMT went out of favor. I’ll try to learn from this mistake and not repeat it. I ended up with a realized loss of $1,506.36 from the series of trades that included an assigned naked put, the shares, and a covered call. I did make money on the covered call, but WMT fell more after I sold the call than the amount I made.

I do like having WMT out of my portfolio now, so I can focus on what’s working versus what’s costing me. The next two I need to deal with, aside from replacing WMT, are my GS and XLB paper losses. Both have seen steady gains over the past week and a half or two, so I’ve hesitated to sell covered calls just yet. I’m planning to make GS work out for a profit, but doubt I’ll have the same ability to work it out for XLB, unless I extend my covered all out until September.

Source link