Rolling a call option

I rolled the call option on my position in Silver Wheaton SLW today. In June I had written the August $12.50 call on the stock. Today I bought back the call and sold the Sept $15 call for a net debit of $.90 plus commissions.

The closed position gave a return of 20.35% for 40 days, using today’s closing stock price. The new covered call position will return 4.3% for 53 days if unchanged, about 15% if called away.

I like SLW as a longer term holding, while making some good option premium along the way. They are releasing earnings on Friday, so I am considering buying a put as insurance against any surprises.

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Stock Market Falls! Stock Option Sold!

In my opinion, markets like this are especially hard on covered call writers. The covered call writing strategy works best in flat or slowly rising markets. Rapidly falling stock prices have the covered call writer replacing expired positions with lower strike prices, often below the original stock purchase price, trying to recover lost ground.

I did exactly that today, I wrote an August $12.50 call on my position in GIGM for $.45. I had originally purchased the stock in May for $14.54 and sold the July $15 call. The share price has been on a serious slide and is trading at about $11.40 today.

I still believe this company is an excellent prospect for growth and expect the shares to trade in the $18 to $20 range soon. (One year maybe!?). Now I want to earn some option income and try to avoid having it called away before a nice run up. Time will tell.

New Investing Blog

I have started another blog on investing called Investing Ideas.

The idea is to discuss a range of investment ideas and link to good ideas from other blogs/sites.

It has just started so check back occasionally to see how it goes. I plan to continue posting here as well. Thanks.

Cash to invest

As I posted last week here, my position in SPIL was called away, so I have some cash to invest.

I am trying not to invest during the first couple of days after expiration. A lot of call writers are trying to sell contracts, so I think that holds down premium pricing.

My sold call on Gigamedia GIGM expired out of the money. The share price on this stock has been quite ugly for the last two months. I still think the company has great future prospects so right now I plan to hold on. They should have an earning release next month, so I am looking for an anticipatory price run-up to sell a call into. Will keep you posted.

Update on Gigamedia

In my last post I discussed my expiring option on Gigamedia. Just did some checking and they should have an earnings report in early August. If history repeats itself, there should be a good run up in the stock price in the 10 days prior to the earnings release. Should be a good time to sell another call option.

Option Expiration Week

I have 2 options expiring this week. First a call on Silicon Precision Industries SPIL. I bought the stock at $9.91 and sold the $10 call. It is now well in the money and my return will be 5.10% for 58 days, or 31.8% annualized.

SPIL is a profitable chip packaging company out of Taiwan that seems to be growing nicely. It makes a nice covered call trade when the share price is near a strike price so you can get some decent time premium.

My other expiration is on Gigamedia GIGM.  I bought this stock (again) in May for $14.54 and sold the July $15 option. This stock is very volatile, and for the last week has been falling and is now trading around $13, so the position is currently at a loss.

I really like the longer term prospects of this stock. Its business is primarily Internet gaming and profits have been growing at triple digit rates. Current PE is 21. I have sold 4 options on the stock since February for a total of $3.50 in premium and have made about $2.50 on share price appreciation. In May the stock was called away at $15 and I bought it back a week later at the $14.54 price. After expiration I will look for another bounce up in price before selling another call, probably the Sept $15.

Cost of Covered Call Strategy

One of the harder things for me to see is when my covered call positions go deep in the money and I don’t participate in the share price gains. I understand this is what happens, but it makes waiting to expiration a little tough sometimes.

I purchased SPIL after the May expiration at $9.91 and sold the July $10 call for $.55 for a nice 5% gain for 2 months. The stock was up $.56 today to $12.07. The good side is the trade will be profitable exactly as planned.

I discussed Silver Wheaton SLW in my last post. From a low this week of about $11.60 the stock closed today at $13.17, up 68 cents today alone. I have sold the August $12.50 call on this stock so it has also moved in the money. Depending on where the option premium goes the next several weeks I may roll this option out to a $15 strike in September or October. The growth prospects and the option premium to be sold make this stock one that I will want to stay with for buy/writes.