BOUGHT ZIOP COVERED CALLBought shares of ZIOP at market open at 4.90, selling the Aug 19th 5 short call against, immediately reducing my cost basis in my shares to 4.20, so my max profit is $80/contract if called away at 5.
Thanks to TurboTech for spotting this high implied volatility premium selling gem!
Coveredcall
BOUGHT PGNX COVERED CALLDid this little fella shortly after open ... . It popped up on Dough's High Options Volume Grid with a rank of 100 and an implied volatility percentage of >100%.
Bought 100 Shares at 5.31
Sold the August 19th 6 call
Whole Package: $463 (so 4.63/share is my cost basis in the stock)
Max Profit: $137 if called away at $6 ... .
Notes: Most people use covered calls as part of a longer-term investment strategy for underlyings that they want to be in as "investments." Naturally, you can do that, too, but here I'm just looking at this as a "trade" while I twiddle my thumbs, waiting for VIX to show some signs of life for my usual bread and butter trades ... .
ESRX - Covered Call (Trade Journal)1W:
1D
4H:
Simple covered call. Call expires 7/15. With commission costs, effective purchase price is $75.26. If call is in the money, almost 3% ROR.
TRADE IDEA: NVX COVERED CALLThanks to TheBanker and the Biopharma chat room for spotting this one ... . A little bit of research on its implied volatility percentage, and voila, a diamond in the rough, premium selling play ... .
Metrics:
100 Shares at 7.56
Sell Aug 19th 8 short call
Whole Package: $620 debit (6.20 will be your cost basis in the shares)
Max Profit: $170 if called away at $8/share or about at 27% ROC
Naturally, this isn't ideal, since the bottom it put in was way below here. Because of that, I'm doing this small, just in case their Phase III RSV trial doesn't turn out as stellar as hoped ... .
TRADE IDEA: BCS COVERED CALLThis little fella was one of the plays on my lengthy post-Brexit list ... . Here, due to the cheapness of the underlying and my not wanting to be married to the trade longer than necessary (it might have further downside), I'm going covered call and tight in with the short call (also, if you go further up with the short call, you can't get squat in premium to reduce your cost basis in your shares). Here are the metrics:
100 Shares BCS at 7.34
1 Aug 19th 8 Short Call
Whole Package: $686 debit (6.86/share will be your cost basis)
Max Profit: $114 (if called away at $8/share)
POST-BREXIT, EWU FALLING INTO A BUY AREAOn a fairly regular basis, I look for things to add to my covered call portfolio. While on occasion I'll dabble in individual underlyings, my preference is to look to exchange traded funds that represent an asset class (e.g., XRT (retail), XLF (financials)) or market (e.g., EWZ (Brazil), EEM (emerging markets)) so that my hat's not always hanging on a single equity in the class.
Unless you've been hiding under a rock or have been stranded on a desert island, the "hot topic" of the day is Brexit, so it makes sense to look for exchange traded funds with exposure to the U.K. or Europe to see if something pops out -- EWU does.
For one thing, it's awfully cheap -- especially when compared to SPY, IWM, and FTSE futures -- such that doing a covered call won't eat up a huge amount of capital if that's the option you go with here. On the other hand, it's almost too cheap to work it with a short strangle, since there's hardly any "meat" (i.e., premium) on its bones.
Because patience generally pays off, I'm waiting for it to fall into this long-term support area between 14 and 13.25 before pondering a bullish setup and am setting an alert to remind me to again revisit the chart if it continues to collapse to that area. As an alternative, I can just start to sell puts in that buy area, hoping to get an assignment at a favorable price; otherwise, I'll just pocket the credit received in the event price doesn't break my short put (currently the August 19th 14 put is priced at about $50; that ain't exactly "huge premium").
Others on my "shopping list": XLF, XBI, and EFA ... .
BOUGHT WFT COVERED CALLI'm looking at engaging a little bit of buying power here while I wait for volatility in the broader market to pick up without taking on a huge bunch of risk ... .
Bought 100 Shares WFT @ 5.78
Sold June 6 Put
Total Package: $518
I'll put in a GTC order to cover for $6.00, since that is what I would receive if called away at expiry, realizing an $82 profit/100 shares. If price is less than $6.00 at expiry, I'll keep the premium received for the short 6 ($60 or so) and will proceed to continue to sell calls against my stock in future expiries to further reduce my cost basis.
TRADE IDEA: WFT JULY 15TH 4/6 SHORT STRANGLEThis is part of a small WFT covered call I'm working ... . The strategy here is to continue to reduce cost basis in the underlying shares. Here I'm doing it with a July 15th 4/6 short strangle in an attempt to sell premium while the implied volatility is still high ... .
Metrics:
Probability of Profit: 63%
Max Profit: $61/contract
Max Loss/Buying Power Effect: Undefined/~$50 (in this particular case, the max loss is actually governed by the fact that the stock price cannot go below $0, so the max loss is actually $400 (the short put strike x 100 shares ($400) minus the credit received for the short call $61 or $339).
TRADE IDEA: VIX "SYNTHETIC" COVERED CALLRecently, I've been warming up to "synthetics" a bit ... . They offer various advantages over the garden variety of covered call, not the least of which is capital efficiency, since they're generally cheaper to put on than regular covered calls and you get to "pick" the price of your "synthetic long stock" without actually waiting for that price to actually be hit.
In this particular case, I'm looking to go "synthetic covered call" in VIX. In an ordinary covered call situation, you buy the underlying stock and then sell calls against that stock in order to reduce your cost basis in the shares. Here, I'm buying a long-dated, far ITM VIX call to stand in as my long stock against which I will sell calls to reduce my cost basis of my "synthetic long." (As a side note, you can't buy shares in VIX -- only options, so even assuming I wanted to go covered call, I couldn't with this particular instrument).
Currently, the Sept 21st VIX 10 call will have a cost basis of about $1035, and the May 18th short call will bring in about a $455 credit, meaning that I will have reduced the cost basis of the long option by about 44% from the get-go. The debit you pay to put the setup on is the difference between the long call ($1035) and the short ($455). Between putting the trade on and expiry, I will repeatedly roll the short call out in time, collecting additional credit and further reducing my cost basis in the long ... . Naturally, the notion is that sometime between now and September, we'll see VIX north of 14, at which time I'll look at taking profit in the setup.
Here are the metrics (what there are of them):
Probability of Profit: Unknown
Max Profit: Unknown
Buying Power Effect/Risk: $580/contract; defined
Break Evens: Unknown
Notes: The reason why the prob of profit, max profit, and break evens are unknown is because you don't know how soon VIX might break 14, how many times you will be able to roll for a reduction of cost basis, etc. You may be able to roll several times before taking profit, but the amount of credit you receive for each roll will naturally vary as the credit received will be, in part, a function of price's relationship to the 14 strike.
