Sell Stock Above Current Market Price
Aug 4, 2010

Sell Stock Above Market Price

Even conservative investment clubs recognize when the time is right to sell a stock that has either underperformed or perhaps has reached the point at which the rate of growth is expected to decline.

It's easy to sell shares, but suppose you want to eke out additional profits.  This can be accomplished by writing a covered call.  The one warning that must be issued is this:  If you anticipate that the stock should not be held because it has become overpriced or is subject to a quick decline, then don't take the risk of holding in an attempt to go for the extra high selling price.

 The recommended strategy is for clubs that are willing to hold onto the shares until option expiration day arrives.

You own 200 shares of YYZ, currently trading near $38.50 and hope to collect $40 per share.  There are alternatives.
  • Enter an order to sell at $40.  If the stock moves that high, you get to sell stock at your limit price
  • Sell two options with a strike price of 40
    • If you are assigned an exercise notice (because the stock is above $40 at expiry), you get $40/share
    • You keep the premium collected when selling the options.  That's an extra bonus.
    • If the stock remains below $40, you can write another call, collect another premium, and try again
  • Sell two calls with a strike price of $35 - if the option price is at least $5
    • If the stock remains above $35, you sell shares at $35
    • You collected $5 for the option
    • Net sale price: $40
Among these choices, the last one on the list - writing options that are already ITM - is not one that many people consider.  Yet, it often offers the best chance, with the least downside risk, to get your target price.  And that price is above the current market.

Mark D Wolfinger

Expiring Monthly: The Option Traders Journal

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