CPSL Wedge

CPSL over the last month has been forming a bearish wedge--lower highs and lower lows--trending down to a prior support at 4.05, and closed yesterday at 4.07. Today it gapped down to 4.00 and made a breakout to the downside.

I am looking for support at about 3.50. It's still falling on low volume, so I'm looking for it in the next few weeks. If it makes support at 3.5 or there abouts I might decide to pick up a few hundred more shares.

Or, I might buy an ITM call at 2.5 and wait for a bounce in the stock. I've got my eye on it. (Sorry no charts)

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.

CPSL Price Test

CPSL made a test of its support at 4.05 today, but only briefly. It then rallied to close at 4.30. I am going to wait to see if it will test again before I go long on the underlying again.

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.

VIX is High

VIX is high, but I am not buying. I don't believe the VIX has topped out, and VIX has been higher in the past, during the .Com bust, and the '02-'03 recession with the collapse of Enron and Worldcom.

I don't want to go long until well after October, because October 15th is when hedge fund managers close out their books for the year for tax reasons. This is generally when we see those managers jettison their loosers, and the markets sees another major fall.

This year with the collapse of Lehman Brothers and another round of beatings for the rest of the financials, it doesn't look good. October has a chance to be the worst month, and then things will have a chance to get better, but until then, I am not bullish.