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Backtest Covered CALL NAT Options Trading Updates

Backtested: NAT Covered Call – April 2021

Or how to recover from stock devaluation by selling monthly covered calls.

  • Sold April16’21 Covered CALL NAT $3.5 @0.11 on 2021-04-01
  • Bought April16’21 CALL NAT $3.5 @0.01 on 12-04-2021
  • Profit $10 per contract
  • DTE 16, closed after 11 days
  • ROI 2.86%
  • ROI annualized 154.66%
NAT 3.5 Covered Call April 2021
NAT 3.5 Covered Call April 2021

By selling covered calls over a stock that has devaluated in our portfolio, we can recover value by profiting from this trade recurrently. In this case I’m using NAT (Nordic American Tankers) as an example:

The initial stock purchase price was $5 and currently is trading around $3, this means a -40% devaluation. Remember that each contact is 100 shares, so we’re looking at a $200 loss per contract. At this point, should we sell? Or hold and do nothing? Neither, we can sell covered calls:

By selling a monthly call just 1 or 2 standard deviations from the current price, we’ll recover value little by little, specially if the stock is trapped around the same price for a long time. Here I sold a CALL NAT $3.5 @ 0.11 , so I receive $11 in premium for each contract, this means:

Original price – loss of value + premium = $500 – $200 + $11 = $311 , we’re not -40% down anymore, but -37.8%. The trade lasted 11 days, so we can attempt to repeat this indefinitely if the situation allows.

As time goes we can re-adjust and decide what to do with this company, we can keep it, sell it entirely, keep adjusting calls as the strike price moves, etc, …

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