Covered Calls for Fun & Income

March 5, 2009

New Positions – ERTS & ILMN

Yesterday I opened two new positions on ERTS and ILMN. I tired to get this post up earlier but other tasks demanded my attention.

ERTS – This was on my watch list off of CallWriter for a few days now. I was waiting for the right time to strike. Technically, I was attracted by the chart, with good solid support around 14.30 and resistance around 19.15, I was waiting for STO to swing up over 20 and it did that yesterday. Since the 20 and 50 MA’s are consolidating right now, I entered with a slightly OTM call. I am not fearful of an expiration OTM since the options on this have high volatility right now – as long as support is not violated I will sell the next month’s call. As far as qualifying according to my Trade Plan, it met 5 criteria. Here are the details of the trade:

Stock=15.64   MAR 17.5=0.22   Cost Basis=15.42   Exp ITM=13.4%

ILMN – What caught my eye on this one is the strength it has been displaying since mid-December. How many stocks can you find that have a 20MA above their 200MA? It met 7 of my entry criteria from my Trade Plan and again I was waiting for STO to do it’s cross. I again entered a OTM covered call based on the continued upward trend of the price and recent resistance at 35.80 which the price could easily break through. Here are the details for this trade:

Stock=31.72   MAR 35=0.46   Cost Basis=31.26   Exp ITM=11.96%

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March 3, 2009

YHOO

Well, I pulled the trigger on this one around 11 AM today. Out of all the prospects on my watch list, this one had the best ITM covered call potential. Most of the entry criteria from my Trade Plan revolved around technical indicators. My 4+ reason were: price at 20ma, price consolidating, STO moving up from 20, Financials B-, $2.2B in cash, earnings not until 4/21.

I ended up buying the stock for 12.47 and selling the MAR 12 call for 1.14, which gives me a cost basis of 11.33. I wanted to make sure I selected a strike that was well ITM because of recent market trends and volatility. If this finished ITM on 3/20, it will book 5.9%.

I have found that there are many stocks in the NASD 100 that are not following the DOW components. Of course, the poor DOW (or DOWn, as my brother puts it) has the likes of Citigroup, GM, GE, etc.

GERN – As mentioned in a previous post, I am holing some losers too. I took action on one today – GERN. I had entered this Covered Call back on 2/5 buying the stock for 7.94 and selling the FEB 7.50 call. If you look at a chart from that day, you will see that I violated almost every criteria for entry in my Trading Plan – now I am paying the price for the increased risk.

So this morning I sold a APR 5.00 call collecting a whopping 35¢ and reducing my cost basis from 6.96 to 6.61. Hey, look at it this way, if I sold the stock now I would lose 44%, whereas if it get’s called in April it will be a 24% loss. It’s a matter of keeping an eye on this one – and I will keep you posted on progress. I may still pull out a profit on this one (I have had positions that quickly rose where I bought the call back and sold the stock after it had recovered my losses).

Usually I only pick options with current month expiration. But in the case of GERN, the MAR 5.00 call was at 0.10 and the APR 5.00 call was at 0.35 – which is more than twice the MAR call. This doesn’t happen very often.

Hang in there… Jeff

February 25, 2009

Update – AGU

Filed under: Covered Calls, Investing — Tags: , , , , , , , , — Jeff @ 11:54 AM

Well, I have not pulled the trigger on this as of yet. Notice on the chart where the 20 & 50 MA are consolidating on price and STO is weakening. I really wanted to enter this trade a few days ago, but now I am not so sure. If I follow my trading plan, then I have to move this into the background.

agu-update-02252009

I haven’t found anything on the CallWriter lists that has excited me so far this week with the exception of NVDA. On Monday I bought the stock for 7.35 and I am waiting to sell the Call. I cannot wait any longer than 3 days, so I need to make a decision whether to proceed today. Right now (about Noon EST), I could simply bail on the stock for a decent 7+% gain – but I will hold off for a while. I have a Limit order in to sell the MAR 7.50 Call for 1.00 (if called is a 18.1% gain) which I may lower later.

February 22, 2009

February 2009 Expiration – It Wasn’t Pretty

The week of expiration was one of the worst I have ever seen. All my positions finished OTM and one ATM. This is the first time this has ever happened to me. Thankfully the underlying stocks didn’t tank.

What I will do with each position is a mix of technical and fundamental analysis to determine if I want to write more calls against a stock, wait to see if the stock recovers and either write calls or sell for a gain, or close the position for a loss and move on.

One position I have is MBIA (MBI) that I had a FEB 4 Call on. Since the stock closed at 4.00 it will be interesting to see if it gets called. My broker tells me that any stock $.01 ITM will automatically be assigned, but I had one position last month that was $0.12 ITM that did not get assigned. Their explanation was there was no interest in exercising all the open calls. So a word or caution regarding that. Of course my answer to that was to sell the stock on Monday as it rose and add another 22 cents to my gain.

Jeff

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