New Portfolio Position
Buy CSIQ Stock: Last Price = $24.08
The target entry price in this example trade will be:
Net Debit = $20.75
Although CSIQ is listed as a technology/semiconductor company, the movement of the stock's price is related in large part to energy prices. Considering this fact, the covered-call may be more appropriate for those who have a bullish outlook for that sector/industry group. We'll monitor the position in the coming week to determine if an entry is possible. A stop-loss transaction (or position adjustment) should be initiated if CSIQ's share price closes below $19.50 - $21.00, depending on each individual investor's risk versus reward tolerance.
Regarding the current issues in our (hypothetical) covered-call portfolio, here is situation for each trade:
LONG EGY Stock and SHORT MAY-5.00 Call
LONG PGI Stock and SHORT MAY-$15.00 Call
LONG CCC Stock and SHORT JUL-$15.00 Call
CCC stock closed at $13.99 on 4/11/08, near the bottom end of a 5-month lateral trading range. The CCC position has been rolled down and forward to the JUL-$15.00 strike due to previous unfavorable price activity and we were monitoring the issue for a close below $14.00. Since Friday's sell-off breached that level, the most prudent action (for conservative investors) would be to exit the position on any further downside activity. However, since the broad market movement at the end of the week was somewhat exaggerated, it may be best to use any ensuing bounce to sell the stock (if the recovery is not sustained). Currently, the JUL-$15.00 call is trading at $1.20 X $1.45, thus a net-credit closing trade would yield a loss of approximately $1.50 per share. While further declines (and the passage of time) will reduce the cost of repurchasing the sold calls, we do not recommend leaving a short option uncovered for more than a few days as the losses can increase exponentially if the stock price rebounds.
LONG KGC Stock and SHORT APR-22.50 Call
KGC stock is trading near $22.75 as of 4/11/08, however the position has previously been closed due to short-term bearish activity.