The last few trading days, CPSL has absolutely exploded. It is up from around 1.50 to above 2.50. I didn't think I would see those levels this early in the year, but it's happened.
I am short calls on my stock at 2.50 for June and September, so I expect this trend to hold, and get called out on my stock, which is the bulk of my portfolio. All of which is fine with me.
Showing posts with label Covered Calls. Show all posts
Showing posts with label Covered Calls. Show all posts
Monday, May 4, 2009
Thursday, April 2, 2009
More Covered Calls
I wrote more covered calls on the remainder of my CPSL position. Half my position is short Sept. 2.5 calls, and the other half is June 2.5 calls, which I wrote today for a dime. Very overvalued, especially since CPSL has basically been trading in this range for a week now. I don't expect to see too many large jumps in the price until further on down the road.
Tuesday, March 31, 2009
CPSL - Covered (some) Calls
After an amazing daily gain, CPSL wobbled. However, there was a buyer interested in purchasing some September 2.5 calls from me, so I sold him 10 very overpriced calls at .20 cents, when theoretical value was under .10. Fine with me, now, I am going to continue waiting for another run up, hopefully to 1.80.Right now, CPSL is below resistance again, in the 1.15 - 1.20 area. Watch for another break out in the next few weeks.
Thursday, March 26, 2009
CPSL - Bullish?
Long time readers will know I am long CPSL--Chinese Precision Steel. Balance sheets look stable enough, but it is an extremely volatile stock. Which, translates in to premium for short positions, ie the covered call.CPSL established a minor uptrend in the last week. Yesterday we saw a Doji candle, followed today, by a 22.3% increase in price today. Previous candlestick patterns resulted in a significant rally. However, it appears that the 1.45 area is solid resistance and might take some effort to break through.
Today showed great volume. I am looking for CPSL to break resistance and move higher as it has previously. Possibly up to 1.75-1.80 area. At this level theoretical values of Sept 2.5 Calls should be about .25. In other words, a few thousand shares would be worth a decent premium.
Friday, March 20, 2009
CPSL - Call Expiration
CPSL is a beaten down stock, along with everything else. I have been long this stock for some time now, playing the high volatility by selling calls against my stock, which worked great until November, when the stock tanked below 2.50 and left me holding the stock and no value in the higher strikes.
I took a chance and sold a few March 2.50 calls at great risk, but they are now expiring worthless today and I am keeping the premium.
I have since added to my position, and averaged down below 2.50.
I am estimating the historical volatility at 97%. As a result, the back month 2.50 strikes are showing some decent premium. I am hoping to see a move in the next few weeks to the prior resistance level of about 1.45. If it fails to rally above that, I will sell my calls there. However, if it breaks resistance, CPSL has a great chance of heading back to higher resistance at 1.80, where I can squeeze more premium out of those calls.
Tuesday, December 2, 2008
CPSL
Sold new calls against my CPSL stock. CPSL, like the rest of the market has taken a beating. My long term outlook is still good, financial statements still look intact. My plan is to slowly buy up more shares and lower my cost basis, and continue to sell what calls I can, though their yield has dropped off. To be expected though.
Looking to see what the markets going to do today after yesterdays slump.
Looking to see what the markets going to do today after yesterdays slump.
Thursday, September 25, 2008
New Calls
With last Friday, I had 7 short calls expire out of the money, which I was happy about because it meant that I could write at least 7 new calls come Monday. And like Jimmy Buffett say, 'come Monday, it'll be alright.'
November options became available on the options calender. And CPSL was hovering right around 4.5 with some dips below. Compared to the October and December calls, November 5.00 calls seemed like the best deal of the bunch with a bid of .45.
I put in a limit order for Nov 5.0 Calls sell to open 7 contracts. It was filled immediately, and I came out with a net credit. That takes my return to ~10% or 5% over the next two months. That is what covered calls are all about.
November options became available on the options calender. And CPSL was hovering right around 4.5 with some dips below. Compared to the October and December calls, November 5.00 calls seemed like the best deal of the bunch with a bid of .45.
I put in a limit order for Nov 5.0 Calls sell to open 7 contracts. It was filled immediately, and I came out with a net credit. That takes my return to ~10% or 5% over the next two months. That is what covered calls are all about.
Friday, September 19, 2008
Today's Expiration
CPSL's geometric mean of historical closing prices is 5.04. And covered calls at 5.00 should yield anywhere between 40% and 50%, depending on volatility and its closing price just after expiration. Expiration dates anywhere from 1 to 3 months out seem to be providing the highest returns right now.
This covered call is not overly bullish and remains a fairly neutral market strategy. Anyone looking for a relatively safe trade in the current market, this is not a bad pick. It's expiration Friday and I am watching and hoping my short calls will expire worthless at the close of the bell today, and there is a good chance that will happen.
Let's see how the rest of the market does.
This covered call is not overly bullish and remains a fairly neutral market strategy. Anyone looking for a relatively safe trade in the current market, this is not a bad pick. It's expiration Friday and I am watching and hoping my short calls will expire worthless at the close of the bell today, and there is a good chance that will happen.
Let's see how the rest of the market does.
Tuesday, September 9, 2008
Covered Call No-nos
There are several no-no's when trading covered calls. You can go back and read how I've made some of these mistakes. They are actually easy to avoid, if you just take the time to learn.
No-no #1) Not doing your homework. The only way to make money in the market (I should add consistently) is doing your homework, and doing it better than 80% of the rest of the schlubs out there. And this is key. Forgetting say, fundamental analysis, might lead to something catastrophic. If you ever go long and buy a stock, you want it to be a profitable company--not a looser sitting in their mother's basement.
No-no #2) Failing to manage the trade. Covered calls are a simple to manage--not like herding a flock of pre-schoolers down El Camino Real. But, you do need to watch it. A covered call will give you some down side protection, but does not eliminate risk. Stocks can still go to zero! Make sure you have a mental stop set up for the trade. The short call can give you downside protection of up to 11% or thereabouts, but it is no long Put.
No-no #3) Trading the wrong strategy. Don't do what I did, and trade covered calls on LEH right before they announce their first losses ever. Catastrophic. If I wasn't sure which direction that was going, but knew that whichever way it was going was going to be the bootleggers car of them all.... I would have Straddled or Strangled long. (As a beginning options trader that was not available to me, and instead of staying out, I did the No-no). A stradle would have captured this and made me a lot of money, but I digress.
No-no #4) Writing calls with too much time. As a buyer you want time on your side, so buy way out, buy LEAPs if you want. But as a seller, too much time can hurt you. Don't sell a call 6 months out, the premium may seem bigger, but in actuality you are going to make more money selling calls 1 to 2 months out from expiration than any other. Watch time drop like a led balloon.
(Time Decay of Options)
Trade right and returns will come.
No-no #1) Not doing your homework. The only way to make money in the market (I should add consistently) is doing your homework, and doing it better than 80% of the rest of the schlubs out there. And this is key. Forgetting say, fundamental analysis, might lead to something catastrophic. If you ever go long and buy a stock, you want it to be a profitable company--not a looser sitting in their mother's basement.
No-no #2) Failing to manage the trade. Covered calls are a simple to manage--not like herding a flock of pre-schoolers down El Camino Real. But, you do need to watch it. A covered call will give you some down side protection, but does not eliminate risk. Stocks can still go to zero! Make sure you have a mental stop set up for the trade. The short call can give you downside protection of up to 11% or thereabouts, but it is no long Put.
No-no #3) Trading the wrong strategy. Don't do what I did, and trade covered calls on LEH right before they announce their first losses ever. Catastrophic. If I wasn't sure which direction that was going, but knew that whichever way it was going was going to be the bootleggers car of them all.... I would have Straddled or Strangled long. (As a beginning options trader that was not available to me, and instead of staying out, I did the No-no). A stradle would have captured this and made me a lot of money, but I digress.
No-no #4) Writing calls with too much time. As a buyer you want time on your side, so buy way out, buy LEAPs if you want. But as a seller, too much time can hurt you. Don't sell a call 6 months out, the premium may seem bigger, but in actuality you are going to make more money selling calls 1 to 2 months out from expiration than any other. Watch time drop like a led balloon.
(Time Decay of Options)
Trade right and returns will come.
Friday, August 29, 2008
Covered Call Checklist
The whole idea of the Covered Call, is to find a stock that you like, willing to own, and accept the risk if something should happen. You have to do a few things first.
1) Do your fundamental analysis. In other words, look at the company, their financial statements, make sure that they are a company that can make money for the forseeable future, that their price to earnings ratio is good, and they aren't up to their eyeballs in debt. The point is, any time you go long in a stock, you should know all of these things.
2) Get to know your Greeks. Options variables are Greeks (Delta, Gamma, Theta, Vega and Rho). You don't need to know how to write a screenplay in Greek to get anywhere with options, but be aware, and even more important. Find out what the Implied Volatility of the stock is! http://www.intrepid.com/robertl/stock-vols1.html?q=~robertl/stock-vols1.html has a nice tool to tell you what the historical volatility of your stock is. Important. (Remember we want to sell high volatility, but on the flip side, it means a larger risk owning the stock).
3) Do a little Technical Analysis. Look at the charts. Have Yahoo! charts show you a 10, 40, and 200 Day Simple Moving Address. Is the price above any of these, or below? Look at the Oscillator, is the position over bought? Is it trending upwards, neutral or down (the covered calls work well with neutral and upward trending stocks)? And be sure to look at this on multiple time frames--1 year, 3 months, 5 days, 1 day. It makes a difference.
When you've done all of this, and you've found a stock you like the look of, and is selling for a good price, go long, and sell your options short. A good covered call should yield about 3-4% a month, which adds up over the course of a year. Be sure to keep your eye on them. The short call can offer some downside protection if things should go to far south for you.
1) Do your fundamental analysis. In other words, look at the company, their financial statements, make sure that they are a company that can make money for the forseeable future, that their price to earnings ratio is good, and they aren't up to their eyeballs in debt. The point is, any time you go long in a stock, you should know all of these things.
2) Get to know your Greeks. Options variables are Greeks (Delta, Gamma, Theta, Vega and Rho). You don't need to know how to write a screenplay in Greek to get anywhere with options, but be aware, and even more important. Find out what the Implied Volatility of the stock is! http://www.intrepid.com/robertl/stock-vols1.html?q=~robertl/stock-vols1.html has a nice tool to tell you what the historical volatility of your stock is. Important. (Remember we want to sell high volatility, but on the flip side, it means a larger risk owning the stock).
3) Do a little Technical Analysis. Look at the charts. Have Yahoo! charts show you a 10, 40, and 200 Day Simple Moving Address. Is the price above any of these, or below? Look at the Oscillator, is the position over bought? Is it trending upwards, neutral or down (the covered calls work well with neutral and upward trending stocks)? And be sure to look at this on multiple time frames--1 year, 3 months, 5 days, 1 day. It makes a difference.
When you've done all of this, and you've found a stock you like the look of, and is selling for a good price, go long, and sell your options short. A good covered call should yield about 3-4% a month, which adds up over the course of a year. Be sure to keep your eye on them. The short call can offer some downside protection if things should go to far south for you.
Thursday, August 28, 2008
CPSL and the Covered Call
After dumping Exxon on its slide down, I had cash to go around. It needed a place to call home. I had decided on CPSL for several reasons.
1) It was trading at a good price $4.40
2) Its current position had not been overbought
3) It had a high Implied Volatility of 59%
4) It's 200 day moving average ranged between 4 and 6 dollars
All of these things made buying Chinese Precision Steel a solid bet for the covered call strategy. At the market open I placed a limit order at $4.45, and executed taking 700 shares at $4.42. I am now long 800 shares (100 from my previous trade), average value at $4.79. Wiping out any pain from my original long position (see previous posts).
September calls @ 5.00 were trading at .45--just shy of two months out. At 7 contracts, that would net me a 10% return for 2 months, or 5% a month. Excellent deal. If they expired worthless, I would still have 800 shares, and could write more calls, and hopefully make more money (I am selling high--volatility--so the call premium is higher). If CPSL should close above 5.00 and my stock get called away, that's more money in my pocket. And, if previous patterns maintain, buy it back after it dips below 5.00 and write some more calls.
1) It was trading at a good price $4.40
2) Its current position had not been overbought
3) It had a high Implied Volatility of 59%
4) It's 200 day moving average ranged between 4 and 6 dollars
All of these things made buying Chinese Precision Steel a solid bet for the covered call strategy. At the market open I placed a limit order at $4.45, and executed taking 700 shares at $4.42. I am now long 800 shares (100 from my previous trade), average value at $4.79. Wiping out any pain from my original long position (see previous posts).
September calls @ 5.00 were trading at .45--just shy of two months out. At 7 contracts, that would net me a 10% return for 2 months, or 5% a month. Excellent deal. If they expired worthless, I would still have 800 shares, and could write more calls, and hopefully make more money (I am selling high--volatility--so the call premium is higher). If CPSL should close above 5.00 and my stock get called away, that's more money in my pocket. And, if previous patterns maintain, buy it back after it dips below 5.00 and write some more calls.
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