New Covered Call Trade

I spent several hours yesterday (Monday) reviewing about 75 stocks as covered call prospects. I use the option scanner from Trade King to get a list of high volatility stocks, near the money, in the price range I want to trade.

I do a quick review on each looking a price trends, profitability, recent news and upcoming news releases. I cross off the undesirables, leaving about 25 to review more closely. Over the next couple of days/weeks I want to pick 3 covered call positions for my account. I will review these stocks again plus option pricing to determine some good covered call trades.

One stock, GIGM, stood out for upside near term potential. I put in a market buy order for the stock at open today.  My order was filled at $12.40. As of mid day the stock is up to $13.30, so I am pleased. I sold the March $12.50 call for $.90 about 30 minutes after market open. This gives me an expected return of 6.0% for 25 days if the stock in uncalled.

It appears I may be giving up a lot of upside potential by writing covered calls on this stock. However, that is my plan for this account, and the idea is short term, steady gains, and it looks like this trade will help achieve that goal.

Interesting point; I sold $.90 of pure time premium. Now that the stock is trading in the money, the time premium on this option is down to about $.50. So the timing worked well for me on this particular trade.


2 Responses to “New Covered Call Trade”

  1. Kurt Says:

    Hey I am a beginner investor and I noticed that you are using market orders. I was wondering why you wouldn’t use a limit order so you can specify your own price? Like the posts, keep up the good work!

  2. planetim Says:

    Thanks for the comment. I usually do use a limit order to place trades. Most of my trades are a “covered call” trade where the stock is purchased and the option sold for a net limit debit.

    In this case, I wanted to buy the stock at market open and I did not have a good idea where it would open. So I placed a market order to ensure I got filled on open.

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