Easy Options Trade
Today we did an easy options trade to generate some passive income. We agreed to sell a company for more than it’s trading at right now, and we got paid to make that promise. Here’s how we did it.
Since our cost basis is significantly below the current trading price this is a winning trade regardless of how it plays out. If the company goes up and we sell some shares we’ll make money. If it trades sideways or goes down we’ll keep all of our shares. We’ll still make money from the options premium, and we’ll be able to sell the calls again next month.
We currently own 600 shares of MBUU in this portfolio with cost basis of $30.98 per share. We have one put at $37.50 and another at $35, both for the 2/21 expiration date. This morning MBUU had their quarterly earnings release and they beat on both revenue and earnings per share. The stock is up over 7% today. When there’s a big move like this we can sometimes capture some extra premium on the upside of the swing. We do that by selling a covered call that is above the money and also above a resistance line.
Looking at the one year chart with daily candles we can see a resistance line at about $44.35. MBUU has hit this several times over the last year and struggles with it each time it gets close. This easy options trade is to sell some calls on one tranche of our position just above this resistance line. We don’t really want to sell shares here, but we’re ok with it if we do, and we think it’s more likely than not that this position will expire out of the money. If it does go in the money we can also roll the position.
We sold to open two contracts of the $45 call on the 2/21 expiration date for $0.82. This easy options trade was for two contracts and brought in $1.64. That brings our basis on MBUU down to $30.76. Now we have several trades active on MBUU, as follows: one put at $37.50, one put at $35, two puts at $32.50, and now two calls at $45. Ideally MBUU stays where it is or even drops a bit so we can get another tranche of shares. But if this training is leaving the station and running up for good at least we were able to get some shares for the ride.
