Covered Call Trade

One of the stocks I have been watching, PKD, made a nice move today, call premium was good, so I made a trade. I bought the stock for $9.65 and sold the May $10 call for $.65.

This give an uncalled return of 5.6% if uncalled and about 9% if called, 58 days to expiration.

I have been trading covered calls and writing about the trades for about 5 months now. My strategy is evolving as I make trades, especially as I make losing trades! I now try to find the stocks with high implied volatility that appear to be more stable than the IV numbers indicate. I look at things like profitability, PE, growth rates, and what industry they are in. I now use the volatility scanner to find the high volatility stocks in the price ranges I want to trade, then analyze the companies for more stable (relatively speaking) growing companies hidden in the garbage.

I am also looking for out-of-the-money trades to either give me a return boost if called, or the opportunity to sell additional calls on the same stock. The outcome to avoid is a stock that falls so far you are writing calls with a strike below your purchase price. Ouch! See my posts on ENCY, EEE, and MED.

I have found one bad trade has had losses equal to the profits of three good ones. I need to increase the ratio of good to bad trades, and work harder to limit my losses.

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2 Responses to “Covered Call Trade”

  1. Jason Says:

    Is there a minumum amount of options required in order to write covered calls? (i.e. can I write covered calls on 100 shares, 200 shares, etc.)

    What kind of options can I write covered calls on? What kinds of options can be “rented” out?

  2. planetim Says:

    A single option contract is for 100 shares of the underlying stock. So the smallest covered call trade is buying 100 shares of stock and selling one call contract.

    You can write covered call trades on any stocks or ETFs that have traded options.

    I am not sure what you mean by “rented” options.


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