Weekly Strategy Discussion

The Weekly Strategy Discussion is designed to assist individuals in learning how options work and in understanding various options strategies. Options involve risk and are not suitable for all investors. The strategies discussed are for educational and illustrative purposes only, and should not be construed as an endorsement, recommendation or solicitation to buy or sell securities. Commissions, taxes and transaction costs are not included. Please contact a tax advisor for the tax implications involved in these strategies.

Targeting a Selling Price

Example:                 You own XYZ stock which is trading at $48.50 

Outlook:                  You are neutral to moderately bullish on XYZ stock over the next few weeks and are looking to sell your stock at $50.

Possible strategy:    Sell one 30 day XYZ 50 strike call at $1.75

At Expiration:

  • Effective Sale Price = Stock Sale Price + Call Premium Received
  • $51.75 = $50 + $1.75
  • Breakeven = Stock Price - Call Premium
  • $46.75 = $48.50 - $1.75
  • Maximum Loss = Significant on the downside with stock ownership 

In Summary: You may consider selling an out of the money call option on a share for share basis to target a sale price for your stock.  By selling a call option against your stock you may be able to enhance your return as opposed to selling your stock outright. 

  VIX Snapshot

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