I just sold 5 October $42 (DUGJP) contracts for $2.65 to rake in about $1300.00. The goal here is to hopefully be called and force a sale of my shares at $42 even though I purchased them at $43.50. Here’s the math:
- I purchased 500 shares of DUG at $43.50
- Immediately sold 5 contracts for Oct $43 (DUGJQ) strikes at $4.30
- A few days later I bought back those same contracts for $0.80
- I’ve just sold 5 contracts for $42 strike for $2.65
What will happen is either: DUG will be trading at or above $42 on October expiry in which case I’ll be forced to sell my shares at $42 meaning ($43.50 – $42.00 = -$1.50) I’ll lose $1.50 per share BUT I’ve made ($4.30 – $0.80 + $2.65 = $6.15 – $1.50) = $4.65 per share or 11% in under 30 days.
DUG will drop in value again and I’ll buy back those contracts cheap or they’ll expire worthless and I keep the full $6.15 then rinse and repeat.
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