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Coveredcall

TRADE IDEA: VRX "MONIED" COVERED CALLLet's start with the metrics for this setup: Buy shares at 24.54 Sell Nov 18th 22.5 short call Whole Package/BE/Cost Basis: 20.40 db per 100 shares/contract (20.40 is also your cost basis and break even) Max Profit: $210 per 100 shares/contract (if called away at 22.50) ROC: 10.3% Now, ordinarily, I like to do "OTM" (i.e., out-of-the money) covered calls where the short call is above the price of the underlying. I feel this gives me a touch more flexibility in working the setup over a substantial period of time should I ultimately decide I want to stay in the play for whatever reason (e.g., continuing high implied volatility, it's ripping to the upside, etc.). Additionally, OTM covered calls offer better ROC %-age metrics, assuming that price continues to move toward your short call. With a "monied" covered call, you're limiting your upside profit potential from the get-go, although you can naturally attempt to roll the "monied" short call up and out for duration, assuming that you can get a decent credit to do so, which isn't always possible. However, in exchange for "going monied," you're getting a benefit: the stock price can continue to decline somewhat, and you can still make money. For instance, if price is still above the short call strike at expiry, your shares are called away and your profit is the short call strike price (x 100) minus what you paid for the setup -- in this case: $2250 minus $2040. If price is below the short call strike, but still above your cost basis, you still make money; the short call expires worthless (for which you book a profit), but the profit you made from the short call exceeds the price decline of the stock. As with any covered call, however, you can lose money if price declines below the cost basis of your setup. In that event, I continue to sell calls against my stock, further reducing my cost basis in my shares until I'm able to exit the trade for scratch or a small profit.
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by NaughtyPines
4
NVAX TRADE UPDATEI figured I'd clean up this setup a little bit on the chart to show what's going on with this trade a little more clearly, since we're running into opex, and I'll have to do something with it here shortly. I also for mapping out what I'm going to do if price does certain things relative to my cost basis and original stock purchase price. The trade originally started out as a "Plain Jane" covered call, where I bought shares at 7.54 and sold the Sept 16th 8 call for something like a 6.39 debit (so my cost basis in the shares at that point was 6.39/share). I proceeded to sell the Sept 16th 5 short put to further reduce cost basis in my shares, as well as to sell some premium in this unusually high implied volatility underlying (I filled the short put for an additional .67 ($67)/contract credit. When, after all, can you get >$50/contract credit for a somewhat far out-of-the-money short put in an <$10 underlying -- rarely. After selling the put, my cost basis in the shares would be 6.39 minus .67 or 5.72/share. Currently, the 8 short call is valued at .72 ($72) (it was originally $115), and the short put is valued at .25 ($25) (originally, $67). Rolling into expiry, I'm looking to take the short put off at near maximum profit (.05 or less). If price finishes above $8 at expiry, my shares will be called away at $8, and I'll be out of the trade. However, what should I do if price either finishes (a) between my stock purchase price and the short call or (b) price finishes below my stock purchase price, but above my original cost basis for the covered call (6.93/share)? If price finishes "between", I'm likely to just treat the trade from that point forward as a straight "speculative long" stock play and set a stop loss for my shares at break even and then let the trade ride. The reason why I would probably not continue to sell calls against and set a stop loss on the stock is to avoid the scenario where I would get stopped out on the stock and have a naked speculative short call hanging out there which could get painful if price whips higher on news (which is due out sometime in the 4th quarter and most likely at a presentation NVAX is going to give in mid-October). If price finishes lower than what I paid for the stock originally, but above my cost basis for the original covered call, I'm likely to just close it entirely out, having made profit on the short put and on the covered call setup ... .
NASDAQ:NVAX
by NaughtyPines
6
TRADE IDEA: AMD COVERED CALL/NAKED SHORT PUTMy "guess" is that AMD will not hold onto this level (I briefly considered going "monied" with the short call with the covered call setup, selling the 7 strike instead of the 8). However. implied volatility is fairly high here (64.6%), and my mechanical approach to most of these setups is basically to "ditch the guessing" and pull the trigger; price will go where it goes ... . Covered Call Metrics: Buy 100 Shares at 7.51 Sell Oct 21st 8 Call Whole Package: 6.93 db (off hours; 6.93 will be my cost basis in the stock) Max Profit: $107 (if called away at 8) ROC%: 15.4% Notes: As an alternative, I looked at selling a put in the Oct 21st expiry below current price. The Oct 21st 7 short put, for example, currently offers up .54 ($54) in premium at the mid. The notion there would either be to (a) keep the premium if AMD finishes above $7 at expiry; (b) look to be put the stock at $7 if it doesn't; or (c) roll the short put down and out for additional credit if price breaks $7. Anything below the $7 strike in the Oct 21st expiry won't offer you much premium at the moment (e.g., the 6 strike offers .25 at the mid, which approaches "not worth it"). At NY open, I'll probably just "flip a coin" as to whether I go with the naked put or the covered call.
NASDAQ:AMD
by NaughtyPines
RIGL COVERED CALLThis ranks up there as one of the more ridiculous covered calls I've done. I say "ridiculous" because I'm selling the short call right at where current price is and dramatically reducing my cost basis at the same time (the share price line is depicted at 2.40 so that the stock price line/short call line don't overlap). Metrics: Buy 100 shares RIGL at 2.51 Sell Sept 16th 2.5 short call Entire Package: 1.76 debit (i.e., your cost basis in the shares is 1.76/share) Max Profit: $75/contract if called away at 2.5 (ROC 42.6%)
NASDAQ:RIGLLong
by NaughtyPines
TRADE IDEA: LC COVERED CALLMetrics: Buy 100 shares at 5.41 Sell Oct 21st 5.5 call Whole Package: 4.93 db (4.93/share's your break even/cost basis) Max Profit: $57 (if called away at 5.5) ROC: 11.6% Notes: I've looked at this underlying several times over the past several weeks, as it keeps popping up on my high implied volatility screens. The good thing about the setup: the short call strike is near to current price, so price needn't move much to finish above 5.50 at expiration. The bad thing about the setup: lows are around $4/share, so it could cave into the poo pile its longer-term charts make it look like -- a post-downhill slide from its initial public offering price of >$25 per share, although support is ZigZag indicated at about 5.15.
NYSE:LC
by NaughtyPines
TRADE IDEA: GNW COVERED CALLMetrics: Buy Shares at 4.62 Sell Oct 21st 5 call Whole Package: 4.36 Max Profit: $64 (if called away at 5) ROC: 14.7% Notes: The ROC metrics are good here; the chart is not. The underlying is at highs, so it might be beneficial to wait for a pullback to initiate a play. By the same token, there is room to the upside (albeit small to next ZigZag indicated resistance at 5.16). I looked at premium on the put side; in my opinion, not enough juice there to sell, for example, the naked Oct 21st 4.
NYSE:GNW
by NaughtyPines
TRADE IDEA: CDE COVERED CALL/NAKED SHORT PUTCovered Call Metrics: Buy 100 shares stock at 13.68 Sell Oct 21st 14 call Whole Package: 12.36 db Max Profit: $164 (if called away at $14) ROC: 13.3% Alternative: Sell Oct 21st 12 put Probability of Profit: 71% Max Profit: $70 (if filled at the mid price) Max Loss: $1140 (if you do nothing and stock goes to $0 by expiration) Notes: The short put play would be either a naked premium selling play or a precursor to initiating a covered call. For the former, look to roll down and out for duration and credit when the price of the short put equals 2x what you received in credit; otherwise, leave the option alone and look to take off in profit at 50% max or above. For the latter, take the assignment at 12 or roll the put down and out for duration and credit to shoot for assignment at a more favorable price. Given the underlying's trajectory and the amount of "air below", I'd probably opt for just selling the short put here. A lot of miners are looking somewhat weak here ... .
NYSE:CDE
by NaughtyPines
TRADE IDEA: RTRX COVERED CALLThis is a bit pricier than I'd like to go with a covered call, particular in biotech, which can implode on you dramatically if there is a clinical trial failure ... . Nevertheless, here's the metrics on this little fella: Buy 100 Shares at 16.42 Sell Oct 21st 17.5 call 13.77 db at the mid Max Profit: $373 ROC: 27.1% Notes: There may be premium to be sold on the put side, but I'm looking at off hours quotes here, so it's hard to tell how wide the bid/ask on those will be during regular market hours ... .
R
by NaughtyPines
TRADE IDEA: NVAX COVERED CALLI'm already in a similar trade, but NVAX keeps on giving with high implied volatility rank and high implied volatility. Metrics: Buy shares at 6.99 Sell Oct 21st 7 call 5.10 db at the mid (off hours; it may naturally look a touch different at NY open) $190 max profit if called away at $7 (a ridiculous profit figure for a $7 underlying) ROC: 37.3% Alternative: Look to just sell premium using the Oct 21st expiry. For example, the 5 short put is currently bid .75/ask 1.15. Even the bid ($75) is stupid rich premium here ... .
NASDAQ:NVAX
by NaughtyPines
COVERED CALL CANDIDATES: AMRN, ARRY, FOLDAMRN at 3.33/share; sell Sept 16th 3.5 call; 2.75 db; max profit $75 (21.4% ROC). FOLD at 7.00/share; sell Sept 16th 7 call; 6.20 debit; max profit $80 (12.9% ROC). ARRY at 4.54/share; sell Sept 16th 5 call; 4.19 db; max profit $81 (19.3% ROC). Notes: Preliminary/off hours. I would also note I haven't looked at these guys' pipelines (they're all biotech) or done due diligence, which is why I'm just looking at them as "candidates" at the moment.
NASDAQ:AMRN
by NaughtyPines