Quick update this week in two positions that have been covered recently:
$55 profit in Starbucks
Dealing with assignment in Johnson & Johnson
$55 profit in SBUX
Last week I shared a new trade in SBUX - the initial trade involved selling a put at the $90 strike, expiring April 21 for $110 in credit.
4 trading days later, the trade was closed for 50% of max profit, or $55 in realised profits. Like I mentioned last week, SBUX is one of those stocks which is always in my portfolio and it complements a ‘buy and hold’ long term investing style perfectly. In 2022 I got assigned 100 shares of SBUX at $100 - 1 year later and SBUX is still trading around the $100 range, so stock price has gone nowhere. But over the same time period I've generated $1,927 in options premium while still holding those 100 shares. I love buying and holding shares and receiving dividends as much as anyone, but I love juicing my cashflow with options even more. You can read about last week's SBUX opening trade in full as well as all my profits in SBUX for the last 5 years via the link below.
Dealing with assignment in JNJ
I was planning to perform a second roll in my JNJ position during live training this past Thursday, but unforunately it got assigned on Wednesday. This means I was forced to buy 100 shares of JNJ at $160. However I did collect $233 in premium prior to this, so this brings my cost basis per share down to $157.67. On the bright side, this presents a great opportunity to demonstrate what to do when trades don't go our way, and how to deal with getting assigned on a position. I chose to implement another strategy I teach in my course called the covered strangle, which is basically selling both a call and a put against the existing 100 shares. The full trade was selling a $145/160 strangle in the April 14 expiration for $113
It's a fairly aggressive way of trying to recover a trade, with 3 general outcomes: 1 - JNJ rises above $160 - the 100 shares get called away. I keep all the premium and exit the position 2 - JNJ falls to $145 - I may need to pick up another 100 shares, but this will further lower my cost basis to about $150 (after factoring in all the premium), which is a good position to begin to sell covered calls again 3 - JNJ stays between $145 and $160 - all the options expire worthless, I keep the $113 in premium and can repeat the trade in May Again the critical thing here is that I'm very comfortable with owning 100 shares of JNJ - whether I get out of this position in April or I hold it till 2024. This comfort allows me to keep a cool head and slowly trade my way out of the position, rather than freaking out and selling the assigned shares at a loss. You can read about the initial roll of the position at the link below.
That's it for this week - unfortunately volatility has dipped again this week despite all the bank woes that are going on. The key is to be patient and wait for opportunities to present themselves.
This article is for educational purposes only. This is my own portfolio which is being managed according to my goals and risk tolerance. Your situation is likely different and you should do your own due diligence before investing in stocks or options.