I have had bought ROKU 85 shares at $122 while back. Since it went down in 60s I decided to average cost and bought 15 more shares at cheaper price which brought down my average cost to 114 per share. This morning I had 100 total shares of Roku at $114 per share. Still I want to reduce my cost basic but can not buy more shares since it is already trading more than my existing cost basis. So I decided to SELL $150 call option expiring May 08 to receive premium of $6.50 which brought my cost basis to $108 per share. Now my question is what happens to my shares when ROKU price is below or above $150 by expiration date which is May 08 Here is my understanding, 1. If Roku stock is at any value BELOW 150 on May 08, I still owns the shares but at price $108 per share. 2. If Roku price is at any value ABOVE 150 on May 08, then all 100 shares will be wiped from my account and my account will be credited with USD 15,000. [Max profit here would be (150-108)*100 = 4200] Is my understanding right? #roku #options #trading #tradingtech #coveredcall #stockmarket #stockoptions #stock #etrade #investments #personalfinance #assets
Yes that is correct but there is no protection for downside.
I agree. If stock is at $60 by may 08, I would still own it at 108 per share and then its upto me what to do with it, either sell or wait when it is up again. Do you guys think this is good stock to hold? When I bought this I thought to keep it for about a year and see what happens.
It is totally dependent on your risk profile. If you think it good stock n you want to hold that js fine too But there are other options too 1. Buy may 8 put with strike price as 115 for 6.65 now in worst case scenario on 8 may you make no profit no loss... since credit received n debit paid cancel each other 2. Buy may 8 put with strike price 129 for 12.8 now u cost per share increase by 6 so now u will pay 120$ per share but worst case you make profit of 900$ (129-120) and in best case u make profit of 150-120 =3000
Good luck!
What platform do you use? The pic seems nice.
eTrade pro and eTrade power
Alright. Thanks.
You had 100 shares at 114. Sold a covered call for 6.5$. Your cost basis is actually still the same you just received 650$ credit that you can use for any stock. If Roku is below 150, you will keep your 100 shares. You already received 650$ the moment your covered call is sold. If Roku is above 150, your 100 shared will be sold at 150. I want to emphasize that your cost basis is not changed. You will need to pay short term taxes on 650$ from the covered call. It's not reducing your cost basis. If let's say 2 years later you sell your Roku shares at 124, you will have long term gains of 1000. Not 1650.
+1 Calling it a reduction in cost basis is misleading
Yeah I figured that actually, this is first time Im placing covered call. Quick question, since you are emphasizing that my cost basis is not changed, I think the reduced cost basis Im seeing is only visible till expiry date? Later may 08 if stock is below 150 I would still see cost basis as $114 plus I already got $650. But this is what confuses me, I dint see my portfolio rise of $650 today so wondering how I get to see where this $650 gone. I am assuming this $650 was added to my cash value but since I dint check how much cash I had before I sold this call Im wondering how would I confirm this is added to my cash.
“She” - New level 😂
Okay fine