Stop What You Are Doing And Pick Up This Dollar Bill
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.
Nice analysis!