Covered call...Take something off the table or let it ride??

C

Cabin111

I went back and forth with this one today...Upland Software https://finance.yahoo.com/quote/UPLD?p=UPLD

I have 200 share I bought cheap about a year ago. They don't show profits, because they want to grow. Over 800 employees...Not chopped liver...Cloud computing.

I did a covered call today for the Jan 22 $70. I got $180. X 2=$360. for it. The stock has doubled over the year...Earnings come up on May 5th.

I think this is a good price for about a $20. rise in 9 months. Then I start to rethink...Going around in circles. Is this a buyout candidate?? Why did I get so much money for such a near term trade?? We could come up with about 4 trillion dollar companies that might pick off a cloud company that is gaining market share.

So...Wise trade or crazy??
 
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I wouldn't because the options markets are really thin and wide - not my first choice. Unless they a better during trading hours.
 
Cabin111 said:
So...Wise trade or crazy??
More...

It's not a trade I'd make. First off, as @ajacobson noted, there's jack for liquidity - so you're paying an arm and a leg to get both in and out. (Both volume and O/I suck too, so there won't be much improvement during RTH.) Next, it's a 22D call for 1.80 over a 272d period, while a call in the front expiration (27d) at about the same delta is more than 1/3rd of that even if you hit the bid. I.e., you could get the same premium by selling it three months in a row instead of holding it for nine - and make better decisions based on what the market does in the meantime.

Since none of us have a crystal ball, you also need to consider the worst-case scenario - the stock dropping like a rock. Not only will it cost you money to get out, but you'll also have to buy back that call. And that tiny premium does not give you much of a buffer for that case.

Last, you're getting a 3.6% return on your money on your money over that 9 month period. Compare that to what the broad market is doing, and consider whether that makes any sense.
 
Liquidity issues and the time to expiration aside, if you want to get out of the stock when it hits the strike, the idea might be OK.

Now that the trade is on, do you plan to roll the option with the market, let it go through assignment if it passes the strike, or plan to roll the trade at expiration to keep it going? If you can't answer questions like these prior to placing the trade, then you shouldn't have placed the trade.
 
Jeff82 said:
Liquidity issues and the time to expiration aside, if you want to get out of the stock when it hits the strike, the idea might be OK.

Now that the trade is on, do you plan to roll the option with the market, let it go through assignment if it passes the strike, or plan to roll the trade at expiration to keep it going? If you can't answer questions like these prior to placing the trade, then you shouldn't have placed the trade.
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If it's ITM just slightly, I will buy it back. If not...Let it get called away. I and the market think it's a quality stock. As I have shared before, I found it with the Royce Family of Companies (RVT, RMT)...Closed end funds. They really pick off gems...RVT hit an all time high yesterday.

Merger and acquisitions have become really big in cloud computing. With this company near it's high, I thought why not pull the trigger in case it is not that great. If a buy out is 25% above the current price, I will still come out ahead. Just my thoughts on this move...
 
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