Covered Calls for Fun & Income

March 17, 2009

Will this be it for March?

I just couldn’t resist. I am seeing options with Implied Volatility of over 150%! This, of course, provides huge premiums. The two Covered Calls that I entered today had very high IV on their March options. These were identified off of the Call Writer Current Month S&P 500 and $10-$20 Stocks lists. They did not provide the highest returns of all the trades listed, but they were the highest return plays that met my criteria. The only area of concern is the limited downside protection these provide, but since I (hope) to only hold these for 4 days, I didn’t let it play to heavily into my decision. Were these good plays? I guess we’ll know Friday at 4 PM.

BTO Stock

STO Option

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection

CLF 12.66

CLFCQ 0.71

MAR 12.50

11.95

4.67%

5.9%

AFL 15.24

AFLCC 0.99

MAR 15

14.25

5.26%

6.9%

By the way, it took me no more than 20 minutes to look at all the Call Writer lists, skim over the top ten and narrow them down to the 4 or 5 that looked good. After all that, these two made the cut.

Another undocumented guideline that I use is not to rush into a trade. I tend to avoid the first hour of the market open, and enter Limit Orders at lunch time (Eastern Time) or early PM just below the market price, and I almost always get that price – almost.

Will I do any more Covered Calls with a March expiration? Well, it all depends on what the market does and the Call Writer lists look like tomorrow. I do have some cash left that will allow me to do one more play for March.

Jeff

“A judge is a law student who marks his own examination papers.”

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