Covered Call Trade Idea with Weekly Options - Generate $80/week from this Space Travel Stock

This is not a trade recommendation, this is a trade idea. I'm not a financial advisor, anything written here should be taken with a grain of salt. I take no responsibility If you will decide to invest

Here at OptionsBrew.com, we like the idea of selling options on a "good" dividend stocks, preferably from the Dow Jones list. But there is this one stock which we have been selling calls/puts since late October 2019 and which is not a component of DJIA and not even a dividend-paying stock. 

I bought Virgin Galactic shares for our daughters stock portfolio, on the first day the shares were listed on NYSE, see: Latest Buy for Child Stock Portfolio: SPCE

Since then we have been selling covered calls and puts with mixed success on this stock, mostly we were selling long term options, so I remember I sold July expiry options with the strike price 11, back in November 2019 for some $0.70 premium. This is something I wouldn't do now. I would stick with monthly or better weekly options instead.

We learn as we go

Generate weekly income selling covered calls on SPCE stock

On May 22, 2020, you could buy 100 shares of PFE stock spending $15.74 per share or $1,574 and simultaneously sell out of the money May 29 expiry covered call at the strike price of $16 for about $0.8. That gets you $80 and makes about a 5% return in 7 days. Or about 260% annualized. Break-even: $14.94

Selling covered calls on SPCE
Selling covered calls on SPCE

One thing you should pay attention - Implied Volatility, which is just huge for SPCE. That's why we have a chance to capture such hefty premiums, but there is also a chance that SPCE will fall from $15.74 to say $11 or 10, and then it will be harder for us to make a decent covered calls. 

If you are looking for calmer stock, see: Covered Call Trade Idea with Weekly Options - Generate $45/week from this Dow Jones list Dividend Stock

Anyhow, here is what could happen next:

If SPCE stock closes below $16 on May 29, you keep the premium and start over.

If the stock closes above $16, your stock gets called away, but you keep premium $0.8 + realize value gain $0.26 ($16-$15.74) from selling stock higher than you bought. Total $102 or about 6.48% potential income return in 7 days.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put and get stock back.

Remember, you are selling one contract, 100 shares of SPCE stock, make sure you have 100 shares to sell if called away.

The biggest risk  - involving in covered call strategy - the stock price could fall below our buy price and stay there for months/years. 

In our opinion SPCE is a decent value growth stock -but there is also a risk, that business model could fail.