Covered Calls for Fun & Income

April 27, 2009

New Position – TXT

Textron sucked me in again! If you look at my closed trades, I lost money on this, but it was all completely my fault. I did something really stupid and wrote a Call below my cost basis last month. It ended up trapping me on a very good stock. So this time I am playing this the right way.

TXT appeared on the CallWriter $10-$20 list with very solid downside protection. Fundamentally and technically, this is a very good stock and passed 5 of my entry criteria, with the exception of the earnings date, which is in two days on 4/29. On 4/9 rumors spread regarding an acquisition and the stock has held up very well since. I am assuming a negative to neutral earnings will not have much of an effect on the price and the acquisition will take weeks or months to finalize.

With that in mind, I entered a slightly ITM Covered Call with a strike of $11 and with May expiration (see below).

– Jeff

“I think it is good that books still exist, but they do make me sleepy.” Frank Zappa (1940 – 1993)

Date

BTO Stock & Price

STO Option & Price

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection

4/27

TXT 11.29

TXYEJ 1.41

MAY 11

9.89

11.22%

12.8%

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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