The backdrop: Two weeks ago, I bought 11 Newmont Mining (NEM) Dec. 15 $37 call contracts at $2.10 each. As I wrote about them – and discussed on the Raging Bull podcast – I was even on the trade early, but the longer-term expiration date gave me an added measure of safety in a choppy market. It was a safe play (and a lesson for newbies on how to play calls safely.)
The follow-up: On Friday, August 18, my position was up 23.8 percent and I sold 5 of my 11 calls at $2.60 (and told my subscribers to follow suit). Not only did this lock in some profit, but it gives me the ability to rebuy those calls lower, while also stretching the remainder of my position if Newmont Mining continues to climb in this market.
I could have sold the entire position – you don’t have to look far to find experts, including my Raging Bull colleague Petra Hess, who are sour on gold right now – but I want some low-risk diversification in my portfolio. That’s a good reason to sell a partial position, locking in some profits but giving yourself some room to run.
What’s next: I will re-buy Dec.15 $37 NEM call options near NEM’s 50-day simple moving average line of $34.44, but not a penny higher. I’m not chasing trades here (or ever).
Davis Martin is the head trader at Dailyprofitmachine.com. He trades SPY calls and puts and swing trades individual stocks and stock options. At the time this commentary was published on RagingBull.com, he had 6 of the 11 NEM Dec. 15 $37 calls he purchased on August 7 at $2.10, with no stop in place. He had never traded NEM or its options in the past, but he plans to re-buy those call options at the 50-day-simple moving average, as described in this article.