Profitable Stock Investing

A key trade in our profitable stock investing lately has been wheel trades on HHH. Here is one of our recent posts on trading HHH. We currently own 200 shares of HHH in this portfolio and our cost basis is $54.66 per share. When we sell a wheel option we sell a put option just below the money and covered call just above. We collect the option premium on both sides of the trading price, and that option premium creates cash flow. In this case we’re no longer interested in acquiring more shares of HHH, so we aren’t selling any more puts. Today we’re going to sell a covered call on half of our shares.

When we sell to open a covered call we want our strike price to be above our cost basis per share. With HHH trading at $75.54 we’re currently have about $20 in profit per share. That means we can easily sell a call at a strike that will give us a profit if we sell the shares here. We’ll collect the premium for cash flow. If HHH is trading above our strike at expiration we’ll sell the shares and reduce our per share basis on the rest of our shares even further. When we sell to open a covered call we’re making a promise to sell 100 shares for each call option contract. We’ll collect cash flow from the premium when we open the contract. Then we’ll have the obligation to sell our shares at the strike price on or before the expiration date.

In this case we can see the $75 covered call trading for $2.10 per share. Since the call option contract is for 100 shares, we’ll collect $210 in premium when we sell the contract. We’ll keep that $210 regardless of what happens with the trading price of HHH. The $75 strike is higher than our cost basis, so this trade also works from a profitable stock investing perspective. If we sell the shares at $75 we’ll have a profit of about $20 per share above our cost basis. We’re only selling one call option contract because we’d like to hold the other half of our shares. If these shares are called away our basis will be under $33 per share on our remaining holding. This trade brings our basis on HHH down to $53.61 per share.

Here is the template we use to track our cost basis for profitable stock investing.