Q: Covered call (strategy applied on Intel)

[Pauluss]

Dear all,

I need some lights for a covered call strategy that I applied (on papertrading with TOS) on Intel's stocks.

The objective is to try to get some "free stocks". In fact whenever a lot of money is stuck the long-term objective is to get the stocks.

To get the clear picture here is the starting picture:

Buy 100 stocks @ 14.14
& sell of Call 14 Mar '09 @ 1.02

Today

Stock 13.27 (loss of 0.87/stock)
Call 14 Mar '09 worths 0.52 (profit = 0.5)
Call 13 Mar '09 is at 1.02

Is this a good adapted strategy to already take the "profit" on the 14 call and sell a 13 Call?

I wonder what is the best strategy (not especially regarding trade cost as there are not "so" relevant although it diminishes the returns).

What is your meaning?


Thanks for all your answers.

Paul

 

[dagnyt]

Quote from Pauluss:

Dear all,

I need some lights for a covered call strategy

I wonder what is the best strategy

Paul

Paul,

There is no 'best' strategy. Each investor has individual needs, goals, and tolerance for risk.

1) You DO NOT have a profit to take. this position is losing money at this point in time.

2) Do NOT think of buying the 14 call and then selling the 13 call as 'taking a profit' on anything.

3) The reason an investor would consider making the trade (it's called rolling the position) is to <i>reduce the risk</i> of holding stock.

If you want to remain bullish on this specific stock, there is no need to roll.

If you want to protect yourself against a further decline in the stock price, then you can buy the 14 call and sell the 13 call. But - how much cash would you collect from these trades? How much is that cash reduced by commissions?

If you are happy to collect that additional cash to give just a small amount of extra cushion in a bear market, then make the trade. If the cash is too small to do any good, then consider selling a call with a lower strike price.

There's a lot to learn about writing covered calls, and it's impossible to provide all the details you need in a simple post.

You can read more about covered calls here. http://blog.mdwoptions.com/options_for_rookies/2008/06/recommended-o-1.html

Also consider visiting http://www.optionseducation.org


Mark