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        2022 Half-Year Recap: Winning streak or zero-sum in your performance?
        Views 108K Contents 389

        Turned a 37% loss into 44% gain in a bear market using covered calls

        TLDR: Got 1 share of $ContextLogic(WISH.US)$ from Moo Moo on 3 Dec 2021 when it was $3.20. Then it crashed to $2, so I bought 99 more and sold covered call on it, hoping to exit with a tiny gain. Still stuck with the shares and is now at a 44% gain and growing.
        Story time
        In this volatile bear market, I do have quite a few profitable positions in Moo Moo because I used a covered call option strategy. This allows me to lower my average cost while riding out the bear market.
        There are a number of position that is in paper loss status though, however over time using this covered call option strategy, it will eventually turn profitable*.
        What is a covered call?
        To understand a covered CALL strategy, we first need to understand what is a CALL option. A CALL option is just a contract that allows the buyer of the contract to buy 100 shares at a pre-determined price, anytime on or before a pre-determined date*.
        A simple way to look at CALL options contract is "Seller will sell buyer 100 shares at strike price, if buyer want, anytime on or before the expiry date". The seller will get money for selling the contract, and the buyer will pay money to buy the contract. The money is known as a premium.
        So a covered call is just you selling a CALL option, but because the buyer may force you to sell them the shares, you need to first have the underlying shares in case the buyer exercise the option. Thus, the word covered, which means if something happens you can fulfil your obligation.
        How the 37% became 46% gain in a bear market
        So Moo Moo gave me 1 share of WISH for free for a contest that I won. Back then WISH was about $3.20. So when WISH crashed to $2, I was thinking hmmm how much lower can it go? why not buy a very small amount of it to test.
        So in Feb, I bought 99 shares at $2.04. But I don't really want to keep it, so I sold a covered call immediately with a strike of $2. I gotten $28 for it thus making the average cost per share to be only $1.76. So even if I was forced to sell my stocks at $2. I still earn $24.
        However low got lower, so there is almost no chance of it getting exercised. So I closed my position for $6 and sold yet another covered CALL for $26. Making the average cost $1.56. It goes on for a few month and the shares is still stuck with me AngryAngry But because I sold covered CALL, the current average cost of my shares is actually $1.30 (you can see the trade record below).
        Turned a 37% loss into 44% gain in a bear market using covered calls
        Since WISH is now $1.87 and my average cost is $1.30. I'm technically having a profit of 44%. Over time, I'm sure the average cost will goes to $0 if the share price keep bouncing up and down.
        Current position in profit using this strategy
        There are a few other position that I'm using this covered call strategy on, that is already in profit due to this strategy despite the buy price is higher than current price. They are $NIO Inc(NIO.US)$, $ContextLogic(WISH.US)$and $DiDi Global Inc(DIDIY.US)$
        Current position in paper loss using this strategy
        There are a few other position that I'm using this covered call strategy on, but is in paper loss status. However, over time the covered call would lower the average cost till it becomes profitable*. They are $Warner Bros Discovery(WBD.US)$, $Palantir(PLTR.US)$, $UP Fintech(TIGR.US)$ and $Grab Holdings(GRAB.US)$
        Hope it helps to shed some interesting light for mooers out there JoyfulJoyful as usual trade safe Keep FightingKeep Fighting
        Other Notes
        * So long the company doesn't go bankrupt. If the share price drop too much, the premium would be very low so it can take a very long time. In this situation, buying the dip would help to speed up the time to recoup but it does put more capital at risk.
        Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more
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        Moo Contributor
        crawled out of poverty, working towards FIRE!! (financial independence, retired early)