Catching the Bull Shark by the Tail: Covered Calls on FIVERR (FVRR)

 Greetings, fellow traders! Are you ready to dive into the exciting world of covered calls? Today, we're setting our sights on Fiverr International Ltd. (FVRR), the popular online marketplace connecting freelancers with businesses worldwide.

FVRR has been on a tear lately, surging over 120% in the past year. But with any hot stock, volatility is like a riptide, waiting to pull you under. That's where covered calls come in, acting as your life vest in this choppy market.

Why FVRR?

• Strong Fundamentals: FVRR boasts a robust business model, with active buyers and sellers growing steadily. Revenue and user base are both on an upward trajectory, indicating long-term potential.
• Technical Breakout: The stock recently broke above key resistance levels, suggesting further bullish momentum.
• High IV Rank: FVRR's Implied Volatility (IV) is currently elevated, making covered calls an attractive income-generating strategy.

Covered Calls Explained:

Covered calls involve selling call options against shares you already own. This generates immediate income (the premium) but limits your upside potential if the stock price rises above the strike price. It's a great way to reduce portfolio volatility and earn steady income, especially on stocks you believe will trade sideways or experience limited upward movement.

Crafting the Perfect Covered Call on FVRR:

1. Choose an Expiration Date: Select an expiry date that aligns with your investment timeframe and risk tolerance. Consider factors like upcoming earnings reports or industry events.
2. Pick a Strike Price: Choose a strike price that reflects your outlook on the stock's price movement. If you're bullish but cautious, opt for an out-of-the-money (OTM) strike to maximize premium while capping your potential gains.
3. Calculate Potential Returns: Factor in the premium received, potential stock price appreciation below the strike price, and the capped gains if the stock rockets past the strike. Aim for a balanced risk-reward profile.

Example:

Let's say you own 100 shares of FVRR at $80 and believe the stock will stay within a $70-$90 range in the next month. You could sell an OTM covered call with a strike price of $90 and an expiration date of February 17th. This would generate around $5 per share in premium, bringing you $500 upfront.

Here's the breakdown:

• Scenario 1: If FVRR stays below $90 by expiry, you keep the premium ($500) and your shares.
• Scenario 2: If FVRR rises above $90, your shares get called away at $90, but you still pocket the $500 premium, resulting in a total profit of $1,300 ($500 premium + $800 profit from underlying shares).

Remember:

• Covered calls are not without risks. If the stock unexpectedly surges past the strike price, you miss out on potential gains.
• Carefully consider your risk tolerance and investment goals before implementing this strategy.

So, are covered calls on FVRR the right call for you? It depends on your individual circumstances and investment objectives. But if you're looking to tame the volatility of this high-flying stock while generating income, covered calls could be your secret weapon. Just remember, always do your own research before making any investment decisions.

Tight lines and smooth seas!

Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.