Covered call cover

My covered calls on Thornburg Mortgage and Gigamedia have good well into the money. To maintain my positions in the stocks I have bought calls on these stocks.

For Thornburg I think the stock should have a significant rise in the next couple of weeks. I have previously sold the Sept $12.50 call. Last week I purchased 2 October $12.50 calls. I have sold one for a profit and the other will replace the stock if it is called away next week.

For Gigamedia I sold the Oct $15 call when it was trading in the $13 range. It is now above the strike price so I bought the Oct $12.50 call. The $15 call has a significantly higher time premium, so I lock in a $.50 profit and keep the stock if it closes above the $15 strike.

Covered Call Gigamedia

After yesterday I thought my Aug $12.50 call on Gigamedia GIGM would expire out of the money. Today with the market up, it is trading just at to slightly in the money.

My plan with GIGM is to hold the stock for the longer term (see my post at Seeking Alpha) so I did not want it called away. I bought back the call and sold the Oct $15 call for a net credit of $.45. I am trying to manage this position to make some income selling calls while continue holding the stock for growth. We will see how the plan works.

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.

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.

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.