Ah, volatility. The bane of some investors, the playground of others. Here at Sharkwater Trading, we see volatility not as a monster to fear, but as a wave to catch. And what better way to ride that wave than with a trusty covered call strategy?
Let's face it, some stocks are just...excitable. Take Roblox (RBLX) for example. The online gaming platform has seen its share price swing wildly since its IPO. This can be nerve-wracking for some investors, but for covered call enthusiasts, it's a symphony of opportunity.
The Power of the Covered Call
A covered call involves selling a call option contract while simultaneously owning the underlying stock. This allows you to collect premium income upfront in exchange for the obligation to sell your shares at a specific price (strike price) by a certain date (expiration date).
Sharkwater in Action: RBLX Case Study
Imagine you, a savvy Sharkwater reader, own 1,000 shares of RBLX. The stock is currently trading at $36-38 per share, and you're eyeing some juicy volatility on the horizon. Here's how you can leverage covered calls to your advantage:
- Strike Price Selection: You decide to sell covered calls with a strike price of $38, expiring in one week. This means you're essentially betting that RBLX won't reach $38 by next week.
- Premium Power: The market is offering a premium of $2 per share for this call option. So, for selling this covered call, you'd immediately pocket $2 x 1,000 shares = $2,000. That's not bad for a week's work!
- Volatility's Double-Edged Sword: Now, here's the exciting part. If RBLX stays below $38 by expiration, you keep both the premium ($2,000) and your original 1,000 shares. But what if RBLX explodes past $38?
Shark Feeding Frenzy: Riding the Upside with Multiple Calls
This is where the real fun begins, especially with a volatile stock like RBLX. Here at Sharkwater, we believe in aggressively capitalizing on volatility.
- Multiple Bites at the Apple: Since the market is clearly jittery, why not sell multiple covered calls throughout the day? As the price fluctuates, you can potentially sell calls at different strike prices and expiration dates, capturing even more premium.
- The Close and Re-Open: Let's say you sold a covered call in the morning, but by the afternoon, RBLX dips back down. You have the option to buy back the call contract (at a potentially lower price due to the dip) and then resell a new call at a different strike price or expiration, effectively restarting the income generation cycle.
Remember, Sharklings:
Covered calls are a powerful tool, but they're not without risk. You are capping your potential upside if the stock price surges past your strike price. However, by employing this strategy with volatile stocks like RBLX, you can generate consistent income throughout the day, potentially mitigating some downside risk and turning that volatility into your personal ATM.
Now it's your turn, Shark. Have you used covered calls to profit from volatile stocks? Share your experience in the comments below!
Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Please consult with a financial professional before making any
