Covered Call Trade

Yesterday I also did a buy/write covered call trade on 24/7 Real Media – TFSM -. I bought the stock for $9.98 and sold the March $10 call for $.45. This will give a 3.4% return if called in 25 days.

For those of you interested in the nuts & bolts of the trade: I use the covered call trade screen at Trade King to put in the stock symbol and quantity and option symbol and quantity. I specify a limit debit, $9.53, in this case. The trade screen will show a bid and ask price for the complete trade. I usually set my limit 5 or 10 cents below the ask price, depending on the option spread. The stock will usually have a 1-2 cents spread, but the options will have 10 to 20 cent spreads. I have found 5 cents back of the bid will usually be filled fairly quickly, any more may take some time. Commissions at Trade King are $10.55 total for 100 shares and 1 option. Additional round lots only adds $.65.

The math here is fairly simple: $9.53 x 100 + $10.55 = $963.55 total cost. If called I will get $1,000 – $4.95 commission for a $31.50 profit.

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