How I Protected My Profits with SPYG
Last week, as SPYG was trading around $87.20, I decided to protect my gains by selling a covered call at a strike price of $89, collecting a premium of $3.07 per share. This move effectively lowered my cost basis on SPYG to $84.13 ($87.20 - $3.07), giving me a 9% hedge against what I initially paid.
Now, with SPYG trading at $92, my strategy has worked well. While my upside is capped at $89, I have still secured profits while collecting premiums. My net profit per share is approximately $4.87 ($89 - $84.13), plus the premium I received upfront.
My Next Steps
With the $345 in premiums collected from selling this call, I plan to dollar-cost average into more SPYG shares in batches. By reinvesting these earnings, I can keep accumulating shares at a lower cost, allowing me to maintain long-term exposure while generating income from options.
If SPYG continues to rise, I may sell another covered call at a higher strike price to capture more premiums while allowing for some capital appreciation. On the other hand, if SPYG dips, I can use the collected premiums to buy more shares at a lower price, further improving my cost basis.
What is a Covered Call?
1. My Understanding of a Covered Call
A covered call is an options strategy where I sell a call option on stocks I already own. This generates passive income from the premiums received while providing some downside protection. However, it also limits my upside potential if the stock price rises above my strike price.
2. How My Covered Call Works
To execute my covered call, I did the following:
• Owned at least 100 shares of SPYG at $87.20 each.
• Sold one call option with a $89 strike price, expiring in March 2025.
• Collected $3.07 per share, totaling $345 in premiums.
By selling this call, I agreed to sell my SPYG shares at $89 if the price goes above it by expiration. If SPYG stays below $89, I keep both my shares and the premium.
3. Benefits of My Covered Call
• Extra Income – The $3.07 premium per share reduced my cost basis to $84.13, providing a cushion against price drops.
• Downside Protection – The premium acts as a buffer if SPYG declines.
• Flexibility – If SPYG stays under $89, I can repeat this strategy for more premiums.
4. Risks I Considered
• Capped Upside – If SPYG surges past $89, I miss out on further gains.
• Obligation to Sell – If assigned, I must sell my shares at $89, even if SPYG trades much higher.
• Volatility – Sharp moves can affect the effectiveness of my strategy.
5. Final Thoughts
Covered calls are a great way for me to generate passive income while holding stocks. I plan to continue using this strategy, carefully choosing my strike prices and expiration dates to maximize profits while minimizing risk.
Thanks do feature me
Comments