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Msg  18007 of 18101  at  7/20/2022 11:22:33 AM  by

dar200


Selling Moderna calls

 I want to share my thinking about selling weekly calls on specific lots of Moderna stock. Maybe the same methodology can be profitable for others.
 
I will sell a call covered by a specific lot of Moderna stock only when the strike price plus the call premium equals or exceeds a price at which I am willing to sell the underlying lot AND the call premium far exceeds my margin cost of carrying the lot.
 
This way I either make a net profit on the expired call premium (premium minus margin interest) or I sell the lot for strike plus premium.
 
I trade Moderna in 1,000 share lots and have a low, negotiated, margin rate with Fidelity. If you trade in smaller lots and have a higher margin rate, just substitute your numbers for mine since the methodology is the same.
 
I bought a lot last Monday for 163,436. Today I sold 10 7/22 calls at 175 for 1,843 net of commission and fees. If I get called, the stock sells for 174,996 plus 1843 premium = total proceeds of 176,839 which is 8.20% above my cost, IMO, a great 4-day flip.
Note the call premium is 1.1277% of my cost.
 
If I do not get called, I keep the 1,842 premium and get to sell another call on this lot next week. However, that costs me a week's worth of margin interest. So, 163,436 x .032 = nominal annual interest of 5,229.95. But Fidelity divides annual interest by 360 days before it multiplies by 365 or 366. So my daily interest is 14.5276 x 7 days = 101.69 per week (before monthly compounding.
 
So the expired option gets me 1843 while I pay 102 = net profit of 1,741 which is 1.065% of my cost.
 
If I can net 1% per week net profit on expired calls, I am content to hold this lot forever.
 
The downside is a stock price which keeps going down, down, down, so much so that I cannot get a decent call premium on a strike price that I am willing to sell. Then my holding on costs me margin interest week after week. With interest rates about to rise by at least 75 basis points next week, that's an extra 24 per week. It gets harder to make a call premium profit.
 
One never knows when the next downward spiral begins or how long it will last. Since I will keep doing this call thing until I get burned, it means I will eat a loss on the last lot I try this.
 
If the shoe fits, consider giving it a try while there may be near term good news, like earnings and more new sales contracts. Bancel's MO is to release other progress news around earnings time. 
 


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