Covered Calls for Fun & Income

March 31, 2009

New Position – PRU

I was monitoring the CallWriter “ITM Calls” Real Time ListTM this morning and saw several high return/high downside protection plays. Remember, I am still not sure what type of market we are in right now and I used the ITM Calls lists to protect my behind.

I snapped up Prudential Insurance (PRU) about 11 AM today. It met 4 of my entry criteria and gave a nice return and great downside protection. The APR 15 Call had an IV of 168%! These are the type of trades that CallWriter looks for.

Now I know this is a company in the financial sector, but the Insurance Companies industry hasn’t been as hard hit as the banks. A few weeks ago I did a play on Lincoln National that was a success, so I didn’t hesitate to do it again.

BTO Stock & Price

STO Option & Price

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection

PRU 19.10

PRUDZ 5.00

APR/15

14.10

6.38%

26.17%

I use Interactive Brokers to trade. Not only are their fees the lowest I have seen, but their OptionTrader panel makes it easy to set a limit and wait for your price. I just create a tab for the stock, and then select Option Spread, select Buy-Write from the drop down and select the month and strike and hit OK. The OptionTrader panel then gives me the net debit and credit for the trade. Click on the Ask price and the order is created. Select the number of contracts and the limit price. In the case of PRU this morning, the Ask was jumping between 14.15 and 14.23. I selected 14.10 and sent the order. I walked away and when I got back around 2:00 PM, I saw that my order executed at 11:03 AM for the price I wanted. Isn’t that sweet?

I have enough cash for two more plays this month (remember no more than 10% of accounts balance on any one trade, plus 10% in reserve – see my Trading Plan). Picking may be limited since I shouldn’t buy any more in the Insurance industry.

– Jeff

“Happiness is nothing more than good health and a bad memory.” Albert Schweitzer (1875 – 1965)

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