Monday Trades In Altria

Covered calls in MO resulted in shares being called away over the weekend.

music selection: “Keep On Loving You” — REO Speedwagon

weigh-in: 200.0 (n/c)

I have two trades in Altria (MO) today. The first is my standard buy/write for income. The second is a more speculative bet with a chance of 100% loss and a chance of up to 166% gain over 117 days or 342% annualized.

I bought 100 shares again at 52.16. At the same time, I sold MO190405C00052500 for 1.01 per share. The trade will be in force for 40 days and yields an expected 17.67% annualized. If shares are called away at expiry at 52.50, I will earn an additional 34 cents in short term capital gains or 23.62% annualized. If shares are not called, I remain eligible to collect the fat and growing dividend on the underlying shares as well as retain the ability to write more calls for income.

The above trade required putting 5,115 in capital at risk. I’m also opening a bull call spread (net debit) that puts a mere 760 dollars at risk. I bought 8 contracts of MO190621C00052500 for 2.0063 per share. I simultaneously sold MO190621C00055000 for 1.0663 per share. My net debit is thus 94 cents per share over 800 shares. If shares close below 52.50 at expiry, I will lose the entire 760 dollars. If shares close above 55 at expiry, I will make 1.56 in profits per share or 1,248 for 124.26% annualized. Prices between the strikes have variable return between 0 and 124.26%. As of this writing shares are at 52.16 indicating a good chance of finishing somewhere in the money. I will close the trade early if I can capture 95% of the upside (2.38) or if I am down 70% (0.28) at any time before expiry.

For ravenous lizards playing the home game. A net debit spread can result in powerful returns. But it is more risky than selling calls for income. Keep your position size small and don’t bet anything you can’t afford to lose. I’ll be doing these trades around twice a month for about 750 in net debit per spread. I’ll report the gains/losses in my monthly Transparency post in the month they are closed or expire.

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