Trade Highlight #6

This trade highlight contains a bigger story than just an options trade. It involves hedging as well. I might’ve taken my profits slightly to early, but made a nice profit anyway.

Last week we discussed some Beyond Meat options. To read that post click here. The last option of the previous trade highlight is still open in my account. You can see the details about the remaining option under number #93 on my Options Page.

Introduction

Here is the option I will discuss this week:

-C AEX 20 DEC 2019 €580 €9,90

You can find this trade under number #91 on my Options Page.

At the 3th of July I decided that the financial markets had gone up too much while there are so many uncertainties. I sold a call (in theory this means that I possibly have to deliver a 100 shares at a certain price) on the Dutch index. The highest point of the index since 2002 had been around €575, I figured I had chosen a safe option at €580.

For a few weeks the price action went a bit sideways. However when earnings came around, one of the stocks that has a big presence in the index, I believe around 15%, ASML had great earnings. The stock went up around 10% and took the AEX index to new highs, around €586. This meant my option was in the money and the option premium was around €1700 at one point.

Background information

I have a few short calls (short positions) to hedge my portfolio for down times, as I assume some rough times will come relatively soon. However these calls all went negative at first as stocks kept surging higher. When finally on Thursday the 1st of August, our friend, Donald Trump decided to Tweet out that the remaining 300 billion of trade with China would be taxed. Stocks declined crazy fast.

All of a sudden all my short calls where positive or near positive positions. I decided immediately on Friday the 2nd of August to buy back my AEX 580 call with a profit of €310. This was on two accounts, so €620 profit in total. The index declined around 2,3% and I figured it was maybe a bit of an overreaction and I decided to capitalise.

Little did I know, at the end of that same day the index was -3%, the following Monday it would go down an additional 2%. With a bit more patience I would’ve earned double the profits. However, thinking like this might be a rookie mistake. I took profits, quite a lot even, when I reached my target. If I was able to look into the future I would’ve been a millionaire by now.

Long story short

While earning most of my money with short puts (long positions), I had a few short calls (short positions) for a while to hedge my portfolio. For a few months this went the wrong way as stocks kept climbing higher. However after Trump set the financial markets on fire I quickly earned a lot of money. I had a short call on the Dutch index which I immediately closed for a profit of €310 (on two accounts).

However, had I stayed a bit more calm I would’ve earned double on the next workday. It’s important though to not hit yourself over the head because of this fact. Looking back in hindsight everyone is able to make the right decisions and become a millionaire.

Nevertheless I ended with a nice and relatively quick profit. Thanks to Donald Trump (this doesn’t mean I support him in any way).

To find more information about options CLICK HERE.

For any questions regarding options, leave them down below in the comment section or simply hit me up on any of my social media channels!

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2 Comments

  1. That’s a nice and quick profit. Too bad you sold to early, but what can we do? Those things just happen. It also bothered me a little bit too when I saw the premiums of all the options I sold too go up so much. If I had sold the exact same options today, I would have earned twice the amount of income, haha.

    • DutchIndependence

      Hi SD, yeah when everything has passed it’s easy to say what was best to do. The nice things with selling options is to realise that you could have gotten more premium for selling the option, but it’s still not a loss. It’s just your position that is red as you could have received more.

      Thanks for commenting!

      DI

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