Covered Calls for Fun & Income

March 23, 2009

Monday After Update

First, some housecleaning items. I have slightly modified my Trade Plan to make it a bit easier to understand. I also noticed that there have been a lot of views, so since I always intended to share this will all my readers, I have added the capability for you to download a Word version for your own use. Look for the file download in the box box at the lower right.

Wow! Big day, huh? All major averages up over 6.5%. You won’t see many days like this. A word of caution, this would have been a very bad day to enter new Covered Call positions as buy/writes. Being the skeptic that I am, I expect a pull back soon. It’s a good day, however, to sell calls on stocks that you would have wanted to sell some Calls on.

Thanks to the Obama administration, the toxic asset announcement gave a very nice boost to LNC this morning. I entered a Limit order for 8.25 just after the market opened. The order executed shortly thereafter. Remember, my original goal was for it to be called at 7.50, so the 8.25 was just extra money in my pocket. My original return would have been 5.33% if it had expired ITM last Friday. Since it didn’t and the stock had a nice pop this morning, I increased my gain to 12.23% – more than double my goal. For those of you looking up this symbol, you will see that it closed at 9.47 today. Since I am very happy with a +100% gain in my return, I cannot look back and say “shoulda – woulda – coulda” and lament over not capturing the total gain. Remember, bulls make money, bears make money, pigs get slaughtered.

I had two stocks with Calls that expired OTM on Friday, X and UAUA. This was a very good day to write Calls against them.

X – my cost basis was 21.39. I sold to open APR 22.50 Calls for 1.60 and lowered my cost basis to 19.79. If the stock is above 22.50 on April 17th, the gain would be 13.69% (not including fees). This more than doubles the original gain.

UAUA – this stock has not been doing well lately. It’s funny (not), I was reading the 10 Commandments of Covered Call trading at the Call Writer site this morning. The one that stood out was #8 where John Brasher says “Don’t let the fact that you’ve noticed a stock on the lists a few times, or even profitably traded a stock before, seduce your judgment. Treat every stock to the same analysis on every trade, even the “good” ones. Good dogs do bad things, and so do stocks.” Well, I have had very good success with UAUA in the past, and I did let that seduce me. Looking back at when I entered this trade, it was in violation of many of my rules in my Trade Plan. So now I am scrambling to recover and will probably end up holding this much longer than I really want to. Yes, this is another confession. To get to the point, my cost basis was 6.49 and I sold APR 5.00 Calls this morning and now my new cost basis is 5.99. Stay tuned on this one, since I may have a month or two yet to get into positive territory with this stock.

Holly Cow! This was a long post!

– Jeff

“I’ve only been doing this fifty-four years. With a little experience, I might get better.” – Harry Caray


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