Covered Calls for Fun & Income

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)

Date

BTO Stock & Price

STO Option & Price

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection

5/4

URBN 20.02

URQED   1.07

MAY/20

18.96

5.47%

5.35%

5/4

F  5.84

FEI   0.30

MAY/6

5.55

8.07%

5.0%

3/23/09

UAUA 8.04

UALFA   0.45 #5

JUN/5

5.19

-3.68%

N/A

April 27, 2009

How to Use CallWriter’s Trade Management Calculator ™

I made my first personal video about a tool that I am very passionate about. CallWriter’s Trade Management Calculator TM is a very critical tool in my arsenal for managing my Covered Call prospects and open positions. It helps me immensely when I need to determine if I want to close early or roll up/out.

I did not post it directly in this blog, since I don’t want too much baggage when I migrate to my self-hosted blog. When I do I will integrate it with the blog, and make more videos too.

Here is the link – CallWriter Trade Management Calculator TM

I hope you like it – remember I am an amateur. Leave comments here, if you have any.

– Jeff

“Progress might have been all right once, but it has gone on too long.” Ogden Nash (1902 – 1971)

April 6, 2009

New Position – Lincoln National Corp (LNC)

Well the market opened slightly down and continued in that direction this morning. This type of action is attractive to me since it means I can get stock cheaper with a lower strike, giving me a better chance that they will finish ITM come the 17th.

Again, I am looking for good downside protection, so I focused on CallWriter’s ITM and S&P 500 lists this morning. I had been seeing LNC on several lists last week, but I didn’t think it was the right time. But, today I noticed that the price is holding at support, around 6.40 and I had owned a Covered Call on this back in March that worked out well. Plus the APR 5 had an IV of 230%!

The only hesitation was the though in the back of my mind that I was being seduced by this stock because I had done well previously with it. I quickly dismissed that be re-evaluating my entry criteria and decided to pull the trigger.

That’s it for April unless one of my other April CC’s shows me good return on an early close, like PRU or USO. They are both getting close to the early close return. Stay tuned. If I should close those early, I will use those proceeds for more APR CC’s.

By the way, I updated the In Play page – I hope it’s easier to understand. The way I had it before was an administrative nightmare!

Date

BTO Stock & Price

STO Option & Price

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection

4/6/09

LNC 6.49

LNCDA 1.80

APR/5

4.70

6.6%

27.25%

– Jeff

“I have hardly ever known a mathematician who was capable of reasoning.” Plato (427 BC – 347 BC)

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