SpaceX Trade Update: How an In-The-Money Covered Call Strategy Created Income During a 40% Drop

Mark Yegge breaks down the math behind his SpaceX trade campaign, showing how in-the-money covered calls, position defense, and rolling strategies helped generate income while the stock moved lower.

Key Takeaways

Why Mark Entered the SpaceX Position

Mark explains that he knew there was a possibility of a decline after the IPO move higher. However, he wanted exposure to the company and decided to enter with a small position while documenting the strategy.

He acknowledges that the entry point was not perfect, but the purpose was to demonstrate how the trade could be managed when a stock moves against the initial position.

Understanding the In-The-Money Covered Call Approach

The strategy used an in-the-money call structure. Mark describes the position as having a long base position and short calls against it.

As the stock declined, the short call position generated income while the long position experienced losses. The goal was to balance both sides of the trade through adjustments.

How Mark Defended the Position During the Drop

As SpaceX moved lower, Mark adjusted his strikes multiple times. He moved from higher strikes to lower strikes as the stock approached those levels.

• Moved the position from the 170 strike area.
• Adjusted toward 155, then 145.
• Continued defending through lower strikes including 135, 125, and 115.
• Later adjusted upward as the stock recovered.

The purpose was to continue managing the position rather than simply accepting the decline.

The Math Behind the Trade Results

Mark explains that his trade ledger separates the base position from the short call positions. The short positions generated realized profit while the base position moved differently.

According to his breakdown, the overall position was approximately $1,991 positive after considering the different components of the trade.

The Role of "Juice" and Assignment Risk

A common concern with covered calls is assignment risk. Mark explains that when there is still extrinsic value, or "juice," there may be less incentive for someone to exercise the option early.

When that extra value disappears, assignment risk can increase. Investors need to understand this trade-off when managing covered call positions.

Why Mark Believes the Strategy Worked

Mark explains that the trade combined three ideas:

• Owning a company he wanted to hold.
• Using option income to generate cash flow.
• Managing the position through market movement.

He believes the income strategy helped him remain positioned even though the stock moved significantly lower from the initial entry.

What Investors Should Watch

The Bottom Line

Mark's SpaceX trade update demonstrates how an options income strategy can involve active management rather than a simple buy-and-hold approach.

The key lesson is that covered call strategies require understanding position structure, risk, adjustments, and the relationship between the long position and the short calls.