Being wrong can sometimes be more profitable than being right.
A recent trade in my entry-level trading service, Jeff Clark Trader, proves that point.
We sold uncovered puts on Strategy Inc. (MSTR) back in January in anticipation of a rally in bitcoin leading to a rally in MSTR – the largest bitcoin treasury company. We collected $2.12 per share by agreeing to buy MSTR at $150 if it closed below that level just one week after we entered the trade.
The stock was trading near $160 at the time. It would take a nearly 8% decline in the stock in one week to require us to buy the shares. So, I expected we would simply pocket the $2.12 per share premium and be done with it.
Of course, when selling uncovered puts, there is always a chance we would have to buy the stock.
That’s why it’s important to only sell uncovered puts on stocks we want to own and at the strike prices we’re willing to pay.
The trade went against us from the start. Rather than rallying bitcoin fell – hard. MSTR – the largest owner of bitcoin – fell hard, too. Subscribers were assigned the uncovered put options. We bought MSTR at $150 per share.
Over the past several weeks, though, we’ve been able to generate income by selling covered calls against our shares.
In the meantime, MSTR has rebounded. Last Friday, MSTR closed above the $150 strike price of our most recent covered call position. As a result, our shares got called away at $150 per share – the same price at which we were assigned the stock.
But, because of the premiums we received by selling uncovered puts and covered calls on MSTR, subscribers recorded a profit of $16.62 per share on the trade.
That is nearly eight times the profit expectation on the original uncovered put trade.
And, it’s better than an 11% gain in just three months.
Yes… the trade took longer than we expected to play out. But, we were paid well for it.
Selling uncovered puts on stocks you want to own and at prices you want to own them is still the best income-generating strategy in the stock market. It allows you to make money when you’re right.
And, sometimes, you can make even more money when you’re wrong.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
P.S. I released another trade just like this to my Jeff Clark Trader subscribers yesterday morning. Go right here if you want to learn to make the best income-generating strategy in the markets work for you, too.