It is like printing dollar bills.
Today we return to our recent trade in VanEck Vectors Semiconductor Fund (SMH).
SMH is a $900 million fund that holds shares in a basket of 25 semiconductor businesses. Review the original recommendation here (https://busy.org/@slider2990/semiconductor-profits) where we had the opportunity to sell the August 17, $105 puts on the fund.
The trade earned $2.25 (or 2%) for selling the puts. On Friday we were assigned shares of stock since SMH closed below the $105 strike price at a cost basis of $102.75 (105 -2.25).
In the chart below, you can see that SMH shares climbed after we were assigned providing a positive return.
Continue to collect cash payments with the following instructions.
Sell the September 21, $105 covered calls on your SMH shares for $2.30 using a limit order and receive a 2.2% payout on your cost basis.
At expiration is shares trade above $105: Shares will be called away for a 4.3% return in about two months or 24% annualized return.
At expiration is shares trade below $105: keep your shares and the income you earned and look for another covered call selling opportunity.
For protection use a stop loss at $95.
Cheers on a great trade.
Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.