Trading Covered Calls

One of the stranger aspects of this type of trading is the waiting. After expiration I spend 3-4 days look at different options to either buy new covered call trades or write calls on the stock where options expired without being called.

After that, it is 3 1/2 weeks of waiting to see if what I am trying to do works out.  I check share prices several times a day, but it does not really matter unless something goes really stupid. (I have had a few of those over the last 6 months!)

The down days like today are starting to bother me less as I become more comfortable with the stocks I own and what the price changes do to my strategy.

I think as I get better at picking the stocks I want to have positions in, this will be basically a load a forget process (with some oversight).

GigaMedia to Report First-Quarter 2007 Financial Results

GigaMedia to Report First-Quarter 2007 Financial Results on May 22: Financial News – Yahoo! Finance

The options expire on May 19 so it will be interesting to see what the price does running up to the earnings release/option expiration. I own the stock covered by the $15 strike May call. The current price is about $14.30, but it was over $15 a couple of weeks ago. I will not be surprised if the price climbs to $15+ before the earnings come out.

A week of lessons learned

I learned a couple of hints this week that will help me improve the profitability of my covered call trades in the future.

Thanks to a hint from  the Daily Options Report, it is not a great idea to sell a call the Monday after expiration to get recovered. All the other covered call players are doing the same. If I had waited 2 days to cover my position in DYN I would have gotten another dime for the call.

In my short time if doing this it appears earning releases have a higher probability of depressing a stock price. Any chance of good news seems to build into the price before the actual release. If estimates are exceeded the price remains stable. If the estimates are met or earnings come up a little short the stock price decreases. SLW dropped by $.40 when earnings came up 2 cents light. If I had sold a call the day before estimates would have made another dime.

BTW, I did sell the June $12.50 call on SLW yesterday for $.30. I think this stock has great potential, so I am writing further OTM calls to make some extra income while waiting for the price appreciation.

Sold a call

The April call on Dynegy DYN expired on Friday, so I sold a May $10 call today for $.25. This gives a 1 month return of 2.1% if uncalled. The stock is currently trading at $9.60.

Dynegy has an earnings release scheduled for April 8. A pop in the stock and getting called out of it at expiration would be nice. Obviously, the opposite would be a little depressing.

I also had a call expire on my position in Silver Wheaton SLW. The stock is down today, and I would like to get a little more premium for the June $12.50 call than where it is today.  They have an earnings release scheduled for Thursday. So either good earnings or higher silver prices should help the stock price and option premium.

Expiration Day

I have 2 calls expiring today: The $12.50 on SLW and the $10 on DYN.

I bought Silver Wheaton SLW at around $10.60 and consider it more of a longer term holding. I can sell the $12.50 calls and earn a couple of percent a month while waiting for it to go up. I believe this company has excellent longer term prospects. They will be releasing quarterly earnings next Thursday.

A week ago I thought my Dynegy DYN position would be called away. I purchased the stock a few weeks ago at $9.72 and sold the Apr $10 call. The stock moved nicely to above $10 but has fallen back the last few days to $9.65 right now. Option premium on the $10 call is about 3% per month after commissions, so I would like to sell a couple before the stock is called away. They have an earnings release on May 8. I am a little nervous about this stock due to the recent pullback, time will tell.

Stock Position – Parker Drilling

Parker Drilling (PKD) is one of my covered call positions. I purchased it Mar 22 for $9.65 and sold the May$10 call for $.65. The stock has been steadily rising and closed today at $10.68.

The option premium has gotten pricey with the May $10 contract carrying an IV of 87. The May $12.50 call costs $.45. So the perception is the stock will be moving.

The company has announced an earnings release for May 8. My position in this stock is set, but if someone is looking for a stock on the move, put this on your list to watch.

If it keeps going up I may consider buying a put a few days before the earnings release. It would appear most of the news is preloaded into the stock price.

Cruising along-CNBC Portfolio Challenge

All of my positions (all 4 of them!) are in good shape, so I had little to write about this week. Next week I have 2 options expiring, it looks like DNY will get called away and I will get to write another call on SLW. Both have moved up nicely over the last few days.

GIGM has fallen back to the $14.50 range. I currently have a May $15 call sold against it. But still weeks to go before expiration.

On April 4 I entered the CNBC Million Dollar Portfolio Challenge.  I am proud to report that I currently rank in the top 22%. I picked a few stocks I have been watching plus some fast movers from the Motley Fool CAPS for about 20 positions. I have made most of my gains by answering the bonus questions each day.