Deep ITM covered call

[dojibear]

I just want some inputs on this strategy, e.g. GE :
If I bought 100 shares GE, presently trading at $29.20, and sell a call Sep 27.50, asking at this moment $2.85.
Excluding commission, I would lock in 9.8% (excluding small dividend in June and Sep) for a period of 5 mths.
Worst case scenario would be that GE tanks like a brique, and my break even point would be (29.20 - 2.85) = 26.35, in this case, I would cover my short call, and exit GE, excluding commish, I would win some theta $.
If GE continued its rally pass 30$, I will be very zen and be content with my 9.8% profit.

Did I forget any traps here? any thoughts?

Cheers!!

 

[Husky02]

sounds good, except vol. levels are real low right now, so any option sold/bought, there would be an advantage to the buyer right now...just another thing to consider

 

[dojibear]

indeed, that's why when I made my calculation, I looked at the bid price for the call. I'll have to sell to the bidder. It was 2.85 - 2.95.
Ditto for the stock.

Cheers !!

 

[wb5983]

Why not just sell the SEPT 27.50 put?

 

[dojibear]

yes, I've thought of selling put, but 1- the dividend, and 2- it's in my RRSP, the Canadian equivalent of your IRA in US, I cannot sell naked put.

 

[Free Thinker]

covered calls are a poor way to make money in a bull market or a bear market.ok in a flat market.

 

[wb5983]

A lot can happen in 4.5 mos. You really have to love GE to enter this position,maybe buy a 25 or 27.50 put and turn it into hedge wrapper?

 

[Babak]

Market is toppy, I wouldn't enter into a long positon (even a pseudo long one such as covered call writes).

 

[Free Thinker]

if you must do covered calls do leaps. buy ge itm 05 leap and sell otm cc against that. lowers the risk of the stock tanking on you.

 

[dojibear]

Thanks for all the inputs.

vhehn, I'll look into your spread. thx for the suggestion.

I got in GE @ 29.19, and with some experience in daytrading, and useless risky exposure , I sold my covered calls @ 3.10, locking in 10.6% profit for now... untill the worst case scenario happens
If the Spoos broke resistance and rocketed away, you guys will be able to go to wine and cheese parties, while I'll stay home with my beers and a bag of chips.

Cheers !!