We received $75/contract on this trade and must purchase the stock at the strike price of $5 if assigned. At this point there is a pretty good chance that we may get assigned on this one. If we do, we are in at $4.25 because of the credit. The stock just got some really disappointing news in which the market felt that the stock was overvalued by about 85%. Does that sound rational to anyone?
If you were at the supermarket instead of the stock market and noticed a buy for 85% what feelings would you be experiencing?
Are those the same feelings anyone has for this stock?
I believe this is a great bargain because without knowing any other details about this stock other than the fact that the stock has just been reduced by 85% sounds like a great deal!
Trade management is very important topic. For example, with less than 5% in any one trade we are not tying up a lot of trading capital. If as in this case of getting assigned, we can hold the security and sell a call option every week or month until we collect enough premium income or profit from the appreciation of the stock to get out with a profit. Either way we intend to come out ahead in the end. Stay tuned.