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.

Covered Call Option Sold

While I was on vacation the call I had sold on Silver Wheaton SLW had matured out of the money. I was able to sell the August $12.50 call for $.55 for 57 days. This is a 4.7% return if uncalled.

I bought 100 shares of SLW in February for $10.56 and have sold the $12.50 call 3 times for a total of $103.20 in option premium after commissions. The shares are currently trading around $12.

This is the type of trade I am most interested in at this time. A company I really like for the growth prospects, yet I can earn another 20% per year in option premium.

Back from Vacation!

I have been on vacation for 2 weeks and failed to post a message before I left about this trip.

I was in Montevideo, Uruguay and had a great time. Did not have access to the internet. (Well did not really try to find some), so I am back and will start posting again.

Option Expiration Week

I only have one option expiring this week, on Silver Wheaton SLW. It is quite a ways out of the money, so will expire uncalled.

I purchased SLW at about $10.50 and have been writing the $12.50 calls two months out for about 2.4% per option return if uncalled. This give annual option premium of about 14%.

I am very positive on the longer term prospect for this company, so I am trying to make some option premium until the price rises.

Friday Review-Covered calls work

This time when the market had tough days I did much better than the last downturn in February. I attribute this to a couple of reasons:

1. I am picking better stocks. Of course this makes sense, but I like small cap, high volatility stocks to write covered calls against, so picking good stocks is a challenge.

2. Better timing. I find stock I am interested in and pick them up when they have had a hopefully temporary drop. The day after earnings release is a good time to check on prices. If you like the stock, you have 3 months to earn options premium until the next earnings release.

3. Mixing out of the money and in the money covered calls. Having some ITM positions give a comfort level when the market drops. The OTM positions give more option selling opportunities at expiration.

Finally, the unexpired option premium in my account is less than the value drop this week, so I know my account will keep growing through these tough times in the market.

SLW: Summary for SILVER WHEATON CORP

SLW: Summary for SILVER WHEATON CORP – Yahoo! Finance

SLW is one of my covered call holdings. I wanted to post a few thoughts on this company stock.

The company buys silver from mines that produce silver as a by product at a preset price of about $4 per oz. and sell on the open market. The company appears to be growing, highly profitable with low overhead (I think there are 6 employees).

The stock has run up nicely the last 4 days to about $11.75. My sold option is the June $12.50. There should be a quarterly earning release the end of June, so a pre-release price runup would not surprise me. If the stock gets called away I will wait until after the earnings number before considering another buy-write.

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.