Covered Calls for Fun & Income

May 13, 2009

Friday Expiration

Not too surprisingly, not all my open positions are ITM or making me rich. On the other hand, not one of them is killing me either. Overall this is a good thing. Of the 8 positions that are expiring this Friday, 3 are ITM (AFL, CROX, TXT) and 5 are OTM (F, URBN, SOHU, HOLX, GERN). Is this a concern? Well, I would like the see the numbers reversed, but we do have 3 more days of action before Friday.

The big disappointment is Ford (F). When they announced they were offering another 300 million shares, it immediately diluted all existing shares – so I took a hit on that one. Overall, though, I know this will turn profitable as I sell more Calls against it.

There is a temptation to roll one or all of the OTM positions to next month, but that would violate my rules and it wouldn’t really make any sense. Although it would bring in premium this week, it would also incur additional trading fees that would dilute the overall credit. Besides, the market knows that Covered Call traders roll during this period, and will capitalize on this at our expense. Better to wait until next week – and probably later in the week – as prices make some pretty strange moves early in the week.

I also like to watch the stock price action for a few days. There have been times, enough of them to be valid statistically, that the stock has made a move up and hit the strike price of the previous Call. At that point, I will just sell the stock and move on to new opportunities (see JAVA as an extremely sweet example of this on my Closed 2009 page).

Stay tuned, as this could be a very interesting and exciting expiration.

– Jeff

“Experience is the name everyone gives to their mistakes.” Oscar Wilde (1854 – 1900)

May 9, 2009

Trading Plan Update

Filed under: Covered Calls — Tags: , , , , , — Jeff @ 12:38 PM

This is a quick post to let you know I updated my Trading Plan – for those of you interested.

I added a new section called Managing and Exiting Trades, which will be of interest and helps me while monitoring trades or making decisions if the position finished OTM.

I also made some other minor updates, especially in the Entry Methodology section.

The best way to read it is to download it using the link on the right (from – 200905 Trading Plan). Trust me, it’s much easier to read that way.

I am also making another download available for those of you who use Interactive Brokers (open-cc-monitor.xls). It’s an Excel spreadsheet that uses IB’s real-time data to update stock and option prices. With it, you can watch your stock and short Call prices and get instant updates on the current value of your position. The only data you will have to enter is in the columns highlighted yellow. The most important data is in columns K through Q.

I also added columns for you to calculate two additional scenarios for rolling out and/or up.

In order to use it, you will need to download and install the Excel plug in from Cyberxpert using this link. Just follow the installation directions. The spreadsheet is already set up.

– Jeff

May 6, 2009

Volatility – HV vs IV

Have you been watching CROX? My gosh! It’s on fire! I entered this on 4/28 and paid 2.21 for the stock and sold the MAY 2.00 Call for 0.41. As of this moment, the stock is at 3.89, a 76% increase! Thinking that I should close this early, as I have in the past when other stocks made similar moves, I ran the numbers. To my surprise, it didn’t work out well at all. I would have to buy back the Call for 2.01 for a net debit of 1.60 and sell the stock for a net gain of 1.68 – I would only make 8¢! Why?

A closer look reveal the Bid/Ask spread on the MAY 2.00 Call is 1.60/2.01 – a rather large spread which was not there when I entered this Buy-Write (I wish I had recorded the actual numbers). But the most obvious indicator is the Implied Volatility (I have posted about this in the past – see April 18th post).

Remember, I want to stay away from Covered Calls that have a Historic Volatility on the stock that is less than the Implied Volatility on the option I am targeting. In this case, as of this writing, the stock HV is 175% (high enough as it is) and the MAY 2 Call is 421% – well over double the HV! That’s why I can’t close this early.

If we express the HV/IV relationship as a ratio, in this case we would get 1:2.4 – definitely a trade I would pass on if I were to do it today. I look for ratios of less than 1:1, more something like 1:0.75 (where HV=120 and IV=90 for example).

When I am looking to enter a trade, one of my several stops on the CallWriter Research Page is the H. Volatility link. Here I can quickly compare the 10, 20 & 30 day Historical Volatility and the Implied Volatility of the near the money options. If they are out of line (greater than 1:1) the potential trade is rejected immediately.

– Jeff

“I have opinions of my own — strong opinions — but I don’t always agree with them.” George Bush (1924 – )

May 5, 2009

Is This Sustainable?

There have been some rumblings in the Just Covered Call Yahoo Group about the Bull Run that the market is in right now regarding a pullback. I am a follower of the S&P 500 index and it has just blown past a resistance point of 877 and closed at 907 yesterday. Breaking resistance soundly is a good indication that 877 will become the new support. There is another, weaker resistance at 943 and then the big one at 1,000 – which is a huge psychological barrier. Right now I am thinking the market will continue to rise overall, but that there will be a pullback or pullbacks and that we should not panic.

I still had some cash sitting around yesterday, so I jumped on 2 trades for May. I had several on a list that I compiled over the weekend, but they all gapped up big time on Monday and I don’t really like chasing stocks that do that.

I found Urban Outfitters (URBN) on CallWriter’s NASDAQ 100 list around noon with a MAY 20. It has just recently broken out of a consolidation pattern, has healthy financials and has a Technical Rating of 100% Buy – a number that I have never seen before. My only point of concern is their earnings announcement the day before expiration.

My second trade was found on the S&P 100 list. About the only good news (relatively speaking) coming out of Detroit is Ford Motor Company (F), so I stepped in with a MAY 6.00. When I told my wife, she said “WHAT!?” Come on, they even outsold Toyota last month! Although their chart has some huge gaps in it, I believe the sentiment in this country is to back a US automaker and the result will be an increase in Ford’s stock price – but I have been wrong before. There is other data to back this up, however, such as a rating of 96% Buy, heavy accumulation, no earnings to worry about for May, broke 200 EMA and the HV/IV ratio is healthy.

I also rolled my underwater UAL Corporation (UAUA) from a MAY 5 to a JUN 5. The stock made a healthy bullish move yesterday and with Swine Flu now occupying less that 7/24 coverage, the airlines should get a pop. With that in mind, I didn’t want to get assigned early and take the 7.8% loss and by rolling I reduced my loss to 3.68%. Eventually I will work this one out to a gain, but it may take a while.

If you look at my Trading Plan, you will see that my allocation rule is to not put more than 10% of my account into any one trade (or industry for that matter), and to keep 10% cash in reserve for emergencies. Take a look at my In Play page and you will see that I currently have 9 Covered Calls open. That means I am fully vested right now. Unless I close one of these early, that’s it (really, honest) for this month. However, I am keeping a close eye on CROX. Did you see what they did yesterday? Up 42% on just an analyst upgrade? With earnings on May 7th, I may close this one early if the gain is close enough to my original target so I don’t have to sweat out earnings.

– Jeff

“Believe in yourself! Have faith in your abilities! Without a humble but reasonable confidence in your own powers you cannot be successful or happy.” Norman Vincent Peale (1898 – 1993)


BTO Stock & Price

STO Option & Price

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection


URBN 20.02

URQED   1.07






F  5.84

FEI   0.30






UAUA 8.04

UALFA   0.45 #5





May 2, 2009

New Positions and Update

I used to get on an airplane every Monday and fly to my work location, and then fly back on Friday. I had a lot of exposure to all sorts of people and frequently got ill. Now I work from home, thank God! This whole Swine Flu is getting too much exposure in my opinion. Hmm… Maybe I should start a blog on it?

So far this month my open positions are doing well – with 5 currently ITM and only 2 OTM.

Friday I took some of my cash and opened 2 new positions: one on Hologic, Inc (HOLX) and the other on (SOHU). Both will produce a fine return for 2 weeks of holding if they finish ITM on the 15th. My only concern is earnings on Monday for both of them, but they are currently showing some very good strength.

– Jeff

“Advertising may be described as the science of arresting the human intelligence long enough to get money from it.” Stephen Leacock (1869 – 1944)


BTO Stock & Price

STO Option & Price

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection


SOHU 56.31

UZKEK 4.00






HOLX 14.77

QHXEC 0.77





May 1, 2009

April Results

Filed under: Investing — Jeff @ 7:25 AM

Well, it was a pretty good month overall. I like to wait until the end of the month to get a picture of how my accounts are doing – just so I have a logical point to do results and comparisons.

For the month in my two IRA accounts, my realized gain in dollars is $4,339.62 and the realized percent gain is 5.27% based on the account balances as of market close on 4/30. Right now my monthly average for this year is 3.99%, which is right in line with my goal of a range between 3-4%.

Let’s take a look at Jeff vs S&P 500:

S&P 500





Year to Date



This certainly proves that Covered Calls miss out on the big moves at the expense of less risk and more consistent returns. But you can also see that over the long haul Covered Calls are leaving the S&P in the dust. If you want to hit home runs, you need to look for another blog. I’m more like Paul Molitor, who got on base more times than just about any other baseball player in history. Where did that name come from? Oh yeah, I used to live in Milwaukee and I have Green & Gold blood running through my veins.

A few other things happened yesterday too. Akamai (AKAM) had a real nice pop from their earnings, so I closed that Covered Call for a gain of 6.73% as opposed to the projected 8.34% if held until expiration and finished ITM. Why? One reason is I can always take that money and get another 5-7% on something else before the end of the month. Remember, the shorter the holding time, the greater the yield. Another reason is I only held it for 5 days, so factor that out to 365 days!

I also sold my USO shares yesterday. I figured oil wasn’t heading anywhere soon, so I sold them for a nice 8.77% gain. Again, I have cash to go shopping for more May plays.

I almost forgot, yesterday was the Ex-Div date for AFL, so I picked up $0.28/share on that. I could reduce my cost basis based on that, but for now I will just leave it alone.

Check out the Closed 2009 page for a recap of each month and year-to-date.

For those of you who use Interactive Brokers and want to see how to roll options up, down or out, please see my video on You Tube – use the links on the left under Video Demonstrations.

I will be busy shopping today since I am flush with cash – enough to do another 2 or 3 Covered Calls for May. How much more exciting can it get?

– Jeff

“America believes in education: the average professor earns more money in a year than a professional athlete earns in a whole week.” Evan Esar (1899 – 1995)

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