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)


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 8, 2009

9 Days to April Expiration

After 4 up weeks in a row, it’s no surprise that the markets have pulled back. As noted in past posts, I was focusing on Covered Calls I opened in April that had good downside protection. With 9 days to go, let’s see how they are doing.

PRU – Opened on 3/31 with an APR 15 Call and 26.19% downside protection. As of close yesterday (22.10) it is still very much ITM.

JAVA – Opened 4/2 with an APR 7 and 19.08% downside protection. As of close yesterday (6.28) it’s OTM. The deal with IBM fell through and the stock got hit hard. Its possible JAVA management may get another offer or make an announcement in the next week or so. I just need the stock to get to 7.00 to make out. I probably will not take a loss on this – I believe there will be good news coming. FYI – my Cost Basis is 6.57 on this stock.

LNC – Opened on 4/6 with an APR 5 and 27.25% downside protection. Closed yesterday at 6.89 and is still ITM.

If you look at the charts for these plays (with the exception of JAVA) you will see that they are holding their own relative to the market trend this week. We can only hope this continues for 9 more days.

– Jeff

“Courage and perseverance have a magical talisman, before which difficulties disappear and obstacles vanish into air.” John Quincy Adams (1767 – 1848)

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