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Covered-Calls 101

HAVING TROUBLE PRINTING?
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Time to Buy or Another Selling Opportunity?

The S&P 500 stock index jumped more than 4% during the past week despite worries about the economy and continued problems in the investment banking industry. The question now is whether or not the rebound can be sustained and investors are wondering when it is safe to start the buying process again.

As far as the activity in our educational portfolio, two positions (EGY and PGI) are performing as expected and one position (CCC) is faring reasonably well, considering the recent volatility.

The current status of each (hypothetical) trade is as follows:

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LONG EGY Stock and SHORT MAY-5.00 Call
Cost Basis = $4.50
Maximum Profit = 11.1% (without margin)

EGY stock closed at $5.58 on 4/4/08, thus no action is needed.

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LONG PGI Stock and SHORT MAY-$15.00 Call
Cost Basis = $13.50
Maximum Profit = 11.1% (without margin)

PGI stock closed at $14.88 on 4/4/08, thus no action is needed.

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LONG CCC Stock and SHORT JUL-$15.00 Call
Cost Basis = $14.15
Maximum Profit = 6.00% (without margin)

CCC stock closed at $15.49 on 4/4/08. The CCC position has been rolled down and forward to the JUL-$15.00 strike due to previous unfavorable price activity. Traders should now monitor the underlying issue for any move that breeches technical support near $14.00. A close below that price should signal an exit in the position for all but the most optimistic investors.

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LONG KGC Stock and SHORT APR-22.50 Call
Cost Basis = $21.85
Maximum Profit = 2.90% (without margin)

KGC stock is trading near $23.36 as of 4/4/08, however the position has previously been closed due to short-term bearish activity.

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