Covered Calls for Fun & Income

April 26, 2009

New Position – AKAM

With only three weeks to go before expiration (it’s early this month, May 15th), it was time to make some commitments and get serious about entering some trades. Earnings are presenting a challenge, but I really don’t want to sit on the sidelines, so I will have to take some calculated risks and be very selective on my choices. This means I may have to give up a few percent in returns, but that’s OK with me. So on Friday I entered a Buy-Write on AKAM (details in the Open Position table below).

Akamai Technologies is leading its industry, healthy financially, plenty of cash; really the only negative on this play is earnings on 4/29. Since all indications are bullish for this stock, I didn’t want it to run away from me. If earnings are good and the stock gaps up or moves up smartly, it may present an opportunity for an early exit for me. Otherwise I feel confident that it will finish ITM on 4/15.

This play appeared on the CallWriter NASDAQ 100 list. I still feel that the NASDAQ is outperforming most other indexes and there are several good choices on that list, but returns aren’t what they have been the list 2-3 months because volatility is decreasing. Don’t get me wrong, this is all OK with me. Even though the premiums are not what they were, the probability of a Covered Call on a good company finishing ITM is much higher under these conditions.

I still have not done anything with USO. I am hoping that it moves above 30 and I can sell the stock without writing any new Calls against it.

– Jeff

“The income tax has made more liars out of the American people than golf has.” Will Rogers (1879 – 1935)

Date

BTO Stock & Price

STO Option & Price

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection

4/24

AKAM 19.41

UMUED 0.96

MAY/20

18.46

8.34%

4.9%

3/23/09

UAUA 8.04

UALEA 0.40 #4

MAY/5

5.63

-7.79%

N/A

3/9/09

USO 27.65

26.10

5.6%

3/3/09

GERN 7.94

GQDEU 0.44 #3

MAY/7.5

6.94

7.1%

N/A

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