Covered Call Trade

Wrote a covered call today on Silicon Precision Industries SPIL. This is the type of stock I seek for covered call writes: $10-$12 share price, good profitability, high volatility, upward price trend.

SPIL is a Taiwanese microchip packaging company. 3rd largest in the field.

I bought the stock for $9.91 and sold the June $10 call for $.55. This gives a 23 day uncalled return of  4.5%.

Advertisements

Trade recap: Gigamedia Ltd.

I purchased Gigamedia GIGM on February 19 for $12.40 a share and sold the March $12.50 call for $.90. The call expired out of the money, thus earning me the call premium.

On March 19 I sold the April $12.50 call for $.85. The stock climbed rapidly through the strike price so on March 27 I bought back the April $12.50 call for $1.77 and sold the May $15 call for $.87. Net cost to me of a nickel plus commissions.

On May 19 the stock was called away at $15. I held the stock for a total of 88 days and earned 27.2% after commissions. That is close to 100% on an annualized basis. The gain is primarily due to the stock price increase and the timely rolling forward of the option.

This stock is very volatile and good use of limit orders on the option trades helped keep the profitability up.

Covered Call Trade Gigamedia

Even though I have not posted my trade recap on Gigamedia GIGM yet, it was called away last week and I have written another covered call on it.

When the earnings report came out yesterday, the stock fell from near $16 to below $15. I entered a net debit covered call trade for the July $15 call at $13.75. I was actually filled at a Net debit of$13.59. Buying the stock for $14.54 and selling the call for $.95. The option premium gives me an uncalled return of 5.8% for 61 days.

I listened to the Gigamedia conference call and to me this company is doing really well. The stock follows a pattern I have seen with some small cap/high volatility stocks: They run up briskly before the earnings release, then drop no matter how good the news.

Trade recap: Parker Drilling

I purchased Parker Drilling PKD on March 22 for $9.65 and sold the May $10 call for $.65. The option expired in the money and the stock was called away giving a profit of 9.3% for 58 days. This would be about 57% annualized.

PKD has continued to rise in price and I am looking at it and OMNI for trades in the oil services industry.

Alternative Energy Stocks: Stocks Watchlist

Alternative Energy Stocks: Stocks Watchlist

After paying $3.30 for gas again today, some of these stocks should be winners.

Trade recap: Dynegy

I had 3 stocks called away over the weekend, so I will recap the prices and profitability of each.

I bought Dynegy DYN on April 4 for $9.72 a share and sold the April $10 call for $.20. That option expired out of the money and on April 24 I sold the May $10 call for $.25. The stock was called away at the May option expiration.

The total return was 5.4% over 44 days after all commissions. This works out to about a 44% annualized return.

I initially placed this trade with a very short, 20 days, time to maturity to make a quick couple of percent if the stock was called away. The option premiums were less than I normally like, and commissions ate up quite a bit of the premium. However, the trade worked out fine and I made a nice return.

Picking stock for Covered Calls

A comment on my last post asked how I picked the stocks I write covered calls on. Here is a short outline:

  1. I use the option scanner available from Trade King to get a list of stocks in the price range I want to trade and with the volatility I am looking for. For example I will scan for stocks trading from $10 to $15 with volatility from 40 to 80.
  2. I then start reviewing the stocks using Yahoo Finance and Motley Fool CAPS to weed out some that look good too me. I am looking for profitable companies with recent good financial news and good stock price trends. I try to diversify industries with the few stocks I am able to write covered calls on so they are not all affected by the same news. This usually narrows me down to 5 or 6 prospective stocks.
  3. I then use a covered call calculator to find the possible returns on the stocks I have found. I look at options expiring for the next two months and would like to make 3% to 5% per month if called. 2% to 3% on the option premium if uncalled. This will usually get me 2 good prospects for covered call writes.
  4. I then try to place trades and get filled at the prices that make sense to me. These stock sometimes have quite low option volume, so getting an order filled may not be possible at a price I like.

I try to be flexible with this process to not pass on stocks that may be a good investment. I also keep an eye out for stocks that may be good future covered call prospects, so when my current positions expire I have some new prospects to study.