In the Money Calls Investing – WMT Sep 2010 $50

Written by admin on May 21st, 2010

Online options trading is often performed using several different strategies. One of the safer options trading strategies is commonly referred to as deep in the money call investing. The idea is to leverage the volatility in the stock market by purchasing call contracts from blue chip companies that are deep in the money. Once the stock market has any type of rally, the contracts can usually be sold for a nice profit in very little time.

Recently, I purchased in the money call contracts with Wal-Mart (WMT) and sold them for a very nice return in less than two weeks. The details of my analysis and transactions of these in the money call trades are below.

Wal-Mart

Wal-Mart Stores, Inc. operates a variety of discount retail stores worldwide, offering products anywhere from groceries to auto supplies and tires. Through the most recent recession, the company has been able to withstand many of the economic issues that have plagued most companies. During these rough times, Wal-Mart has increased market share against it’s competition which has positioned the company for continued strong growth.

Wal-Mart (WMT) is a blue chip stock that pays dividends, which they have consistently increased annually for the past 35 years. Recently, the company had a P/E ratio under 15 and a dividend yield close to 2.5%. All of these factors make Wal-Mart an attractive online options trading opportunity to leverage the most recent volatility in the stock market.

Wal-Mart September (2010) $50 Call Transactions

The following 3 transactions were made in the span of two weeks on the September (2010) $50 call contracts. The first two transactions I placed a Buy to Open bid which purchased 4 call option contracts. The last transaction that was placed was entered as a Sell to Close bid to exit out of the contracts and take profits.

Here are the details of each transaction.

Purchased 2 -WMT100918C50 Contracts – 04/21/2010

  • Total Cost (w/Commission) – $1,009.46
  • Average Purchase Price – $5.05

Purchased 2 -WMT100918C50 Contracts – 04/28/2010

  • Total Cost (w/Commission) – $909.46
  • Average Purchase Price – $4.55

Sold 4 -WMT100918C50 Contracts – 05/05/2010

  • Total Sale (w/Commission) – $2,148.99
  • Average Sale Price – $5.37

Calculating Return on Investment

Buying and selling call options is a quick way to post a positive return on an investment. It is also an easy way to lose a lot of money if you don’t put an option trading strategy into place.

Here are some important highlights of my trades.

  • Number of Days with open contracts = 14
  • Average Cost per Contract = $4.79
  • Average Selling Price per Contract = $5.37
  • Total Return/Loss = $230.07
  • Return on Investment = 11.99%
  • Average Return per Day = $16.43

Final Thoughts

As an options trader, I set a few guidelines that I need to follow in order to have long term success. Buying and selling call options of Wal-Mart fit with many of the rules that I have put in place to limit my risks while trying to maximize my gains. My return on investment was just under 12% which is remarkable in just 14 days. This style of investing beats any other stock or options trading strategy (e.g. selling covered calls) in my book.

Online options trading can provide incredible returns in a very short amount of time. Trading options contracts can also wipe out your entire investment just as fast. While there are plenty of huge risks trading options, the rewards are just to hard for some investors to ignore. If you are considering trading options, I urge you to study everything you can about how they work and the risks involved before losing your hard earned money.

Full Disclosure – At the time of this article, I did not hold any positions in WMT the stock nor did I own any call options contracts that were associated with the company.

Tags: , , , , , , , , ,

«
»

Leave a Reply