Covered Calls for Fun & Income

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 20, 2009

April Expiration Results

Normally I like to take the bad news first and then the good news – you know, so I feel better when it’s all over. But this month’s expiration contained some really good news and some not-so-bad news, so I will go with the good news first.

JAVA – As you probably know by now, today Oracle tendered an offer for Sun Microsystems for 9.50 a share. This is a wee bit better than the IBM offer @ 9.40 and it may not face any antitrust issues. But that’s not what’s important; it’s the effect it had on the price of my shares today. Friday my APR 7.50’s expired OTM with the stock at 6.69 and my cost basis at 6.58. Since today all I had were the shares, I sold them soon after the open for 9.09 and a sweet 30.93% gain on the whole deal. This didn’t involve much skill – just a lot of good luck!

X – US Steel expired ITM for a gain of 12.19% in 4 weeks (I did 2 Covered Calls on this one).

PRU – Prudential expired ITM for a 4.64% gain with a holding time of 2.3 weeks.

LNC – Lincoln National expired ITM for a 4.59% gain in 1.6 weeks.

The above are closed positions, so visit my Closed 2009 page for a recap of the year.

USO – US Oil finished OTM Friday. I won’t do anything with this except watch it this week. Of course, if it moves up above 30, I will probably sell it. If it remains flat, I may sell some MAY 29 or 30 Calls.

TXT – I let this one expire ITM for a 6.5% loss. I was in a trap with this since I rolled it on 3/16 for a strike below my cost basis. I should not have done that since the stock was showing strength with the Stochastic moving smartly up and my cost basis at 5.47, but I was greedy and thought only of the premium amount. In retrospect, holding the stock into April would have netted me an easy 100%+ gain. They say hindsight is 20/20, but it also teaches us lessons.

UAUA – UAL Corp could turn out to be a problem for me. I have been trapped before when I roll down to a strike below my cost basis, as in TXT. If I have to let this be called on May 15th, it will produce a loss of 7.79%.

GERN – For Geron Corp I was able to avoid the underwater trap by rolling this to a MAY 7.50. It cost me a debit of 0.40 to do this, but I will be able to sleep a lot better knowing I can avoid a loss at this point. This is a stock I should not have entered, since I really did not want to hold this for a long time, but here I am trying to make a small profit on it.


BTO Stock & Price

STO Option & Price

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection


UAUA 8.04

UALEA 0.40 #4






USO 27.65




GERN 7.94

GQDEU 0.44 #3





That’s it for today. The rest of this week will be spent cruising the Call Writer lists and monitoring the market for a hint of which direction it might head. Earnings will be hot and heavy the next few weeks, so be careful if you are entering any trades at this time.

Speaking of earnings, Saturday I walked by an Apple store – it was packed with people and it sounded like there was a party in there. Their earnings are Wednesday and the stock has enjoyed a very nice bull run. I wonder what will happen?

– Jeff

“I’m a great believer in luck, and I find the harder I work the more I have of it.” Thomas Jefferson (1743 – 1826)

April 18, 2009

Expiration Week and IV

I usually don’t consider rolling short calls up/out until the last few days before expiration. Thursday I was analyzing my options when it struck me that some of the rolls to the next expiration month would result in very small net credit or even a net debit! I have never experience this before – after all time value should count for something. Then I noticed something rather disturbing: the Implied Volatility (IV) for the options of the 3 positions that I wanted to roll was extraordinarily high!

In particular, let’s discuss EXM – again!

I am pretty far underwater on this stock – my cost basis is much higher than the strike price of my short Call. That being the case, I wanted to roll my APR 5.00 to the MAY 5.00. Normally this results in a net credit, but not in this case. It actually would have cost me money to do this roll out. Then I noticed the IV of the APR 5.00 was over 350% and the MAY 5.00 was around 125%. The IV of the Puts was relatively normal in comparison.

Now IV does play a part in the Black-Sholes formula for option pricing (I don’t claim to understand the formula) but how much? Apparently quite a bit! This volatility means something!

So, what should I do? The stock has had a nice run up since its low of 3.00 on March 3rd and closed Wednesday at 6.78. High IV means that the market is anticipating an event for EXM and it could be soon. I didn’t want to roll any further out than the next month – it’s just too risky.

Now we are all very small players, the big guys control all the cards. Somebody knows something. What I read into the IV on the Calls was that EXM may make a significant move in a bullish direction very soon. I checked everywhere I could think of for any news that might give me a hint, but there just wasn’t anything out there. However, I was backed into a corner and didn’t want to get called out on the rest of my positions in EXM, so I made a decision – I bought back all those calls Thursday afternoon for 1.95!

This cost me a chunk of money (one reason why I keep at least 10% of my account in cash) but now I don’t have to worry about early assignments. As of Friday, the stock is at 7.54, so I already made back 0.76 of the 1.95 I paid for those Calls. What I will do is watch for the right time to either sell the stock outright if it rises above my Cost Basis or write another set of Calls against it if it gets weak and goes flat or pulls back again.

My lesson learned is this – for positions that are deep ITM, I will not longer wait until the last few days prior to expiration to roll up/out positions that I either want to keep or are too far underwater and ITM. Of course the best position to be in is to be profitable and ITM and have your shares called away.

Monday night I will post my results for APR expiration.

– Jeff

“The wise are instructed by reason; ordinary minds by experience; the stupid, by necessity; and brutes by instinct.” Cicero (106 BC – 43 BC)

April 14, 2009

Countdown and Ramblings…

Four days to April expiration, some might say there are three days. I always get confused when counting days! Does today count as one? Do we count Friday, since that is the expiration date? I always liked the way that I learned it in the Army – 3 days and a wake up!

At this time I am not fretting over any of my positions. For the most part they are in pretty good shape. There are a few that I am underwater on that are ITM, but I will just roll them on Thursday or Friday. The rest will expire either ITM or OTM – duh!

If you are anxious to jump into new Covered Calls next week, remember to keep in mind that this is the beginning of earnings season. Personally, I will probably not open any new buy-writes next week – not only because of earnings, but also (as mentioned previously) I want to take maximum advantage of time decay. I say let the buyer pay for it!

I have been a bit frustrated lately with the limitations that (the free hosted version) puts on their users. I have been seriously considering hosting it myself, which would give me infinite possibilities for features. The only problem is, once I do that I will have to manage it myself. You should know that I am no web guru (I don’t know a cascading style sheet form a cascading waterfall) and my fear is that I will hose it up and crash the entire blog. Ultimately I will do it, maybe this weekend. I wanted to start adding videos and plug-ins that will, for instance, give current prices on positions. That would be cool, huh?

I recently acquired a copy of John Brasher’s The Ultimate Covered Call Book. Wow, is there a lot of good stuff in this book! Nowhere, not in any of the 20 or so books I have read on options, have I seen detailed information like this. I have been struggling with the Greeks for quite a while now, but he puts it into a form that I can understand and relates them to how they impact Covered Call writing. Repair Strategies – no one ever talks about this but he does; covering several strategies for various scenarios. He even talks about impacts on taxes – 7 pages worth! When I get done with it I will post a much more detailed review on this blog. You can find more information at CallWriter.

So, until Thursday, I will be in a watch-and-see mode. Then it’s planning for any rolls I may need to do either Thursday & Friday.

– Jeff

“Computers make it easier to do a lot of things, but most of the things they make it easier to do don’t need to be done.” Andy Rooney (1919 – )

April 2, 2009

Covered Call Weather Report – April 2, 2009

Mostly sunny with seasonal temperatures

Pre-markets are looking good today. A-PAC and Europe markets are all up. Oil is up and Gold is down – complimentary signals for a bullish move today. But, for the life of me, I can’t imagine why, with all the bad news around these days.

Looking at a weekly chart of the S&P 500 I have these unsolicited comments: Close yesterday 811, 20 week EMA is at 855, there is resistance around 920, the Stochastic crossed 20 two weeks ago (currently at 46) and this may be the fourth up-week in a row – which hasn’t happened since October of 2007 – and that was the start of the Bear Market. So, if we want to call March a bottom (in my mind) the S&P 500 needs to break the 20 EMA and resistance at 920 and establish them as support. Four up weeks would also help – meaning this week needs to end with a gain.

April Expiration

I have been thinking about my positions that are expiring in April (heck, that’s all of them). Some are currently Near-the-Money, and if this situation sustains itself into the last few days this month, I will not hesitate to either roll them down to get called or let them expire OTM and sell the stocks on the Monday after.

For the most part, I favor rolling down for these two reasons: 1) the commission costs are minimal and 2) Monday’s after expiration (heck, any Monday for that matter) scare the hell out of me. I am always in favor of capturing gains when they are at or near my goal rather than waiting for a few tenths of a percent additional or waiting a few days and increasing my risk. Plus, and this is a BIG plus, if we are in a bull run the best way to capture that with Covered Calls is to write new ones, not roll existing positions up (I will quantify this on a new page sometime in the future).

Watch for a more detailed report as expiration nears.

March was a good month. This weekend I will report on those results and enhance my ‘Closed 2009’ page with more realistic data.

– Jeff

“Victory belongs to the most persevering.” Napoleon Bonaparte (1769 – 1821)

April 1, 2009


Pre-market this morning is showing a negative open. Europe is down, although A-PAC is mixed. First Quarter Earnings Season starts next week.

With all that in mind, I will still be looking for the best downside protection for the two positions I still have cash for, and I certainly will not pick any that have earnings on or before expiration on April 17th. Picking Covered Calls with high downside protection reduces my gains, but having 20% or more downside protection at least allows for a lowered amount of risk.

Almost every other open position is currently OTM, which means I will not have many called away this month. There are a few positions that I can roll down to a lower APR strike and still make a profit, such as US Steel (X), and I will not hesitate to do that – but I will wait until a few days prior to expiration to make that decision.

The snapshot below is a tool called Trade Management Calculator TM included with the CallWriter service. It allows me to instantly in real-time compute what-ifs on my positions. The example is for US Steel and shows the Flat and If Called calculations for rolling down those Calls. Also, using Interactive Brokers for my trades will only cost me a few dollars to do the roll.


I will be busy again today, and may just monitor and not make any entry decisions. A distraction when I am trying to make a good choice has had very negative implications to me in the past.

– Jeff

“I am not young enough to know everything.” Oscar Wilde (1854 – 1900)

March 23, 2009

Monday After Update

First, some housecleaning items. I have slightly modified my Trade Plan to make it a bit easier to understand. I also noticed that there have been a lot of views, so since I always intended to share this will all my readers, I have added the capability for you to download a Word version for your own use. Look for the file download in the box box at the lower right.

Wow! Big day, huh? All major averages up over 6.5%. You won’t see many days like this. A word of caution, this would have been a very bad day to enter new Covered Call positions as buy/writes. Being the skeptic that I am, I expect a pull back soon. It’s a good day, however, to sell calls on stocks that you would have wanted to sell some Calls on.

Thanks to the Obama administration, the toxic asset announcement gave a very nice boost to LNC this morning. I entered a Limit order for 8.25 just after the market opened. The order executed shortly thereafter. Remember, my original goal was for it to be called at 7.50, so the 8.25 was just extra money in my pocket. My original return would have been 5.33% if it had expired ITM last Friday. Since it didn’t and the stock had a nice pop this morning, I increased my gain to 12.23% – more than double my goal. For those of you looking up this symbol, you will see that it closed at 9.47 today. Since I am very happy with a +100% gain in my return, I cannot look back and say “shoulda – woulda – coulda” and lament over not capturing the total gain. Remember, bulls make money, bears make money, pigs get slaughtered.

I had two stocks with Calls that expired OTM on Friday, X and UAUA. This was a very good day to write Calls against them.

X – my cost basis was 21.39. I sold to open APR 22.50 Calls for 1.60 and lowered my cost basis to 19.79. If the stock is above 22.50 on April 17th, the gain would be 13.69% (not including fees). This more than doubles the original gain.

UAUA – this stock has not been doing well lately. It’s funny (not), I was reading the 10 Commandments of Covered Call trading at the Call Writer site this morning. The one that stood out was #8 where John Brasher says “Don’t let the fact that you’ve noticed a stock on the lists a few times, or even profitably traded a stock before, seduce your judgment. Treat every stock to the same analysis on every trade, even the “good” ones. Good dogs do bad things, and so do stocks.” Well, I have had very good success with UAUA in the past, and I did let that seduce me. Looking back at when I entered this trade, it was in violation of many of my rules in my Trade Plan. So now I am scrambling to recover and will probably end up holding this much longer than I really want to. Yes, this is another confession. To get to the point, my cost basis was 6.49 and I sold APR 5.00 Calls this morning and now my new cost basis is 5.99. Stay tuned on this one, since I may have a month or two yet to get into positive territory with this stock.

Holly Cow! This was a long post!

– Jeff

“I’ve only been doing this fifty-four years. With a little experience, I might get better.” – Harry Caray

March 16, 2009

New Look – New Positions

Filed under: Covered Calls — Tags: , , , , , — Jeff @ 1:22 PM

If you have been here before, then you know that this is a new theme. It turns out I am writing in this blog much more than I ever expected to, and I needed something wider with a smaller font so I could fill it with my hot air. If you haven’t notice, this blog is a bit more light hearted than many other financial blogs – it’s because I have so much fun with Covered Calls.

Today I entered a position on LNC from my watch list yesterday. PRU and HIG took off to the upside pretty heavy this morning and brought the ITM expiration profit down to 1% or so. But LNC was still hanging in there at a respectable 5.33% return. Here are the details:

BTO Stock

STO Option

Option Exp/Strike

Cost Basis

ITM Return

Downside Protection

LNC 9.18

LNCCU 2.06





I have a position in TXT right now that expired OTM last month. Today, the price rose enough to justify writing a call against it for April. Although it puts me upside down if it expires ITM in April, I plan to roll it out or up as needed. So I sold to open an April 5.00 for 1.05 that brings my cost basis to 5.50 (see open positions for detail).

I think, therefore I am – I think.


March 13, 2009

Friday the 13th Activity

I was watching my open positions closely this week as the market rallied. This morning I decided to close the positions that were showing me enough profit to justify this decision. As you know, we are in a very volatile environment and anytime you can take money off the table profitably, you should do it – at least that the way that I play the game.

Although none of these positions turned the profit that I would have had if they had expired ITM next Friday, I was very apprehensive about leaving them ride for another week. Monday’s always tend to scare me anyway as we never know what the week has in store for us.

So here’s what I did:

Closed ILMN – Gain if called out = 11.96% Gain with early close = 9.54%

Closed YHOO – Gain if Exp ITM = 5.91% Gain with early close = 4.46%

Closed ERTS – Gain if EXP ITM = 13.49% Gain with early close = 9.37%

These are actual gains after broker commissions.

See my Closed Positions page for any additional information.

So far this year I have only 1 realized looser, and I consider myself pretty lucky at this point. The realized gain on my account (this is not the account balance increase – just the gain for closed positions (see my confession)) is 9.27%. I base this on the realized gain against the closing balance on my account as of December 31, 2008.

I would have liked to get this info out sooner, but I never intended for this to be an alert service and it never will be. I just want to show my readers that Covered Calls can be profitable in almost any market condition.

Take a look at my new page that discusses various strategies for adjusting trades. Feel free to leave a note and tell me what you think.


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