Covered Calls

[m_winston]

Sold DFS Calls Dec 7.5 for 1.15 (DFSLU)

[JimQuinceH]

UNCOVERED CALL

Bought SWGKQ (November 95 SPY Call Options) at $5.10 each.

Today is the 10 week cycle low, IMO.

Jim

[Joe Stocks]

APWR - long some here @ 5.33. Covered call. Sold the NOv 5's for 1.35

[Joe Stocks]

AIG long at 2.36. Sold the October 2.50's for 66 cents.

[Joe Stocks]

AIG - Covered call. Long at 15.00. Sold the OCT 10's for 6.30

Downside protection to 8.70. (42% below current price.) 8.6% return for a bit more than a month hold if AIG closes above $10 on Oct 18th.

Can AIG drop that much in a month? Could happen

[Joe Stocks]

DIG - Long at 77.96. Sold the Oct 78's for 7.30

[rajaram46]

Joe,

How do you determine what strike and time to expiration to write your call? I am thinking of writing a call on AXP for Oct 42.5? Any opinions?

What technicals do you look at?

Thanks in advance,
-R

[m_winston]

Good options trade from Barrons

------------------------------------------------------------------
New Life for Death Trades
AUGUST 25, 2008

Using options to bet on a company's demise may not be honorable, but it can be profitable.

THERE IS NOTHING SACRED about Fannie Mae (ticker: FNM), Freddie Mac (FRE) or Lehman Brothers (LEH). That investors might wager on their deaths should not cause anyone duress.

These companies and their executives have destroyed too much shareholder value to deserve safe passage through the stock and options market. Still, investors owe them a real debt for they have institutionalized a new type of trading on Wall Street: death trades.

The death trade, circa 2008, mostly entails buying put options and shorting stock, to wager on corporate insolvencies or takeovers at very deep discounts to recent share prices.

The hallmark of the trade is a flurry of activity in puts (options that increase in value when a stock declines) that are far below the recent stock price.

Corporate targets of this trading often contend that rumors are spread with emails and instant messages by nefarious hedge funds who also sell stocks to manipulate options prices and to scare other investors to sell their shares.

Target companies need not die for death trades to be profitable. A lot of money was made trading puts on the wounded Bear Stearns even though the company was ultimately rescued by J.P. Morgan which bought the investment bank for $10 a share.

If death-trade stocks just materially weaken, money can still be made trading in and out of the stock and options. Think of a metronome swinging back and forth.

The tick-tock marks the beat of rumors and frames the trading tempo. A swirl of associated options trading is usually enough to scare stock investors into selling or to viewing stock weakness as an omen.

Options trading is often seen as the purview of the most sophisticated investors, or even corporate insiders, who use options (whose gains magnify those of stocks) to position for bad news. If the stocks do plummet somewhere near zero, the cost of the puts will prove as insignificant as the price of a winning lottery ticket.

Fannie Mae and Freddie Mac are deep in the options market's death pool.

One highly-regarded pension and hedge fund manager recently advised clients that options on these cash-challenged mortgage giants indicate a 45% probability that a government rescue would wipe out shareholders. (See "The End Game Nears For Fannie and Freddie." Monday, August 18, 2008.)

Put options are trading actively that would increase in value if Fannie Mae's and Freddie Mac's stocks fell below $2.50 and $3. The stocks recently traded at about $5, and $2.81, respectively.

Though Lehman's stock is much higher than the mortgage giants' share price, similar sentiments remain on display in the options death pool. On Friday, someone bought put options to bet Lehman's $15 stock could trade as low as $2.50 in October.

Smoke typically reveals fire, but be warned that dalliances with death trades could prompt investigation by federal regulators.

These damaged companies, some of whose stocks have declined more than 90% just this year, have been known to cry that they are victims of rumor mongers working in unholy alliance to inflict mortal harm. The Securities and Exchange Commission usually offers a cuddly shoulder, and a warm hug. It is not clear, though, why regulators do not meaningfully review the very institutions they are charged with regulating to limit the probabilities of these crises from even occurring. But of course, that is a different and more troubling story.

When Bear Stearns first attracted death trades, the Federal Reserve and Securities and Exchange Commission staffers were on site at major banks, including Lehman, to review the corporations' capital positions. This was trotted out by some senior executives like some analgesic that should calm nervous investors. Still, the stocks declined, and the final prognosis seems far from certain.

As macabre as all this might be, death is profitable; it's just that big corporations don't like being on the other side of the trade.

For a time, investors used so-called viatical settlements to bet on deaths of people afflicted with the AIDS virus. That tawdry practice mutated into the so-called life settlements business of buying insurance on healthy, elderly people to prepare for a big payout when they die. At least seven Internet sites exist for betting on the date of death of famous people. Less organized "death pools" exist in offices all over the world. Like betting on who wins the Super Bowl, death pools collect wagers on when well-known people will die. One New York advertising executive wagered on Mother Teresa's death.

If money can be made betting on a Saint's demise, what's so bad about wagering on sinners?

MW

[Joe Stocks]

AGO - added at 10.72. SOLD the AUG 10's for 1.75.

[Joe Stocks]

BZP - long at 20.08. Sold SEp 20's for 2.70

[Joe Stocks]

CHK - Long at 49.51. Sold the SEP 50's for 4.70.

[Joe Stocks]

FWLT - added some here at 54.32. Sold the AUG 55 for 3.20

[Joe Stocks]

Just saw this posted and thought it an interesting thought.
From Minyanville.com

>>
When government makes the judgment for the people to take their money and buy risky assets like stocks, it's the end of free markets. Why is this important? It isn’t to socialists. Socialists believe that government will make good choices and that it knows better than its people how to allocate capital and resources.

Capitalists believe this is worse than hubristic. When the government decides to take taxpayer money and allocate that money to a worthless risky asset, production goes down. Those involved in production do not know what comes next from the mind of government so they don’t know how to allocate whatever capital the government leaves them.

It's a slippery slope so we must be careful. Bank stocks high to low are moving at a 200 vol. Why are stocks moving like this? Because of artificial manipulation and mis-allocation of capital. The volatility we're seeing in the all important financial stocks is a function of government intervention. Investors cannot understand or handicap the risks when the government is stepping in and changing the rules to the game but also mis-allocating capital. So there's no market left per se, no investors buying and selling on the interpretation of value and environment. The government is determining the value for them.

You can’t say “well it stops here so no harm”. People said that at Bear Stearns. Now we have this. Where does it stop?

Risk is high. <<

Someone at Minyanville.com

[Joe Stocks]

SRS - stopped out of a couple positions for near breakeven on the shares, but earned premiums for the last 2 months or so.

[Joe Stocks]

AGO - Added long here at 10.75. Sold the AUG (24 days until expiration) 10's for 1.85. Protected down to 8.90. If it closes above 10 at expiration I will be taken out for a 12% return on the money I have at risk. (10.2% on my investment)

[Joe Stocks]

FNM - Long at 8.00. Selling the AUG 7.50 calls for 2.10. Downside protection to 5.90. 20% return if taken away at 7.50 31 days from now.

[m_winston]

I think Vallium was invented just to keep Robin Williams calm.

Funny................ Thanks........

[Joe Stocks]

OT - seems a little humor may be needed here.

Always good for a smile.

[Joe Stocks]

SRS - Rolled a July covered call into AUG selling AUG 100's for 10.20.

[Joe Stocks]

MF - Long at 6.36. Sold the July 7.50's for .60

Selling on this stock appears to be overdone. Street treats this one like a mortgage company. High premiums but risky.

[Joe Stocks]

SMN - Covered call. Long at 28.76. Sold the AUG 30's for $2.00

[Joe Stocks]

Hi Rick, Sorry to be so slow in getting back with you.

Here are my thoughts on CROX;

You are correct, the downside to covered call strategy is a limited upside, and an unlimited downside. Stock picking is especially important. CROX is a prime example of getting broadsided. For me I am 90% a fundie trader and 10% technical. I liked CROX fundies then and still do. I thought their growth rate would slow down, but I thought it was already priced into the mix. CROX currently has a forward PE of just 5. I can't see much more downside as I think most of it is priced in. However, I was wrong then and may again. I think CROX has great branding and more than ever now represents a good covered call candidate.

So, I have held on to it and continue to sell the calls. In a couple more month I may be close to making up my losses. That is the good side to covered calls. You do have some downside protection. The stock is depressed and and may be for sometime. But, as long as it is popular it will have volatity that will increase call premiums. For me now it is a 'rental' property. What I paid for it no longer matters - I just want to keep it 'rented'.

As a side note, I am not particularily fond of retail. Like Nike I think CROX could outperform retail in general. CROX has strikes at every $1. That makes it nice to find attractive plays at almost any level. Right now you can buy the stock for $9.55 and sell the July 9's for 1.10. The 55 cent premium is a 5.8% return in 33 days and offers 11.5% downside protection. I doubt if CROX will report before July exp but they could warn - that's the risk. With the tax rebates being spent I think thechances of them warning are nil. Could e wrong though.

So, my recovery plan fr now is to just keeping selling calls on CROX. My June 11's expire Friday. I am going to wait until next Monday to rewrite instead of buying back this week.

[rickh]

Joe, I'm curious what is your recovery plan for the drop in CROX that happened in mid-April. It seems you must have either wrote your next CC at a much lower strike price (risking a loss if called) or accepted a much lower premium.

Sorry if you posted this information - I looked through the thread and did not see it.

I ask because I see the potential for a stock tanking as the big downside to a CC strategy - it locks you into a stock that may be depressed for long time.

[Joe Stocks]

TSL - Long at 38.36. Sold the July 35's for 5.50. 5.6% return in 36 days if taken out. downside protection to 32.86 - 14.3% downside protection.

Go op IMO.

[rajaram46]

Understood. Thanks. Bought some AXP near the close yesterday. Will wait for a bounce to write a call.

[JimQuinceH]

RAJARAM, I don't follow American Express but anytime that you write (sell) a Call Option against your stock and if the Call Option is excercised, as long as you come out with a profit, it should be considered.

Jim

[rajaram46]

Jim or anyone,

Was thinking of buying AXP and writing the January 09 47.50 call. Anybody have an opinion on AXP here?

-P

[guzbug]

Jim, you're obviously smarter than I. :( I just am not into the options. Dang..........there is so much out there to choose from, it gets overwhelming. I might just go sit in a corner and suck my thumb. gg

[kemahjoe]

nice @ hod! can get em back at purchase price now

[JimQuinceH]

UNCOVERED CALL

Sold June 136 (strike) SPY Call Options at $4.35 +$40 (10%) per option.

Jim

[Taxmantoo]

Those calls are on sale again, you can beat Jim's entry right now.

[JimQuinceH]

UNCOVERED CALL

Bought SPY June 136 Call Options at $3.95...eom

Jim

[Joe Stocks]

GU - Long at 17.10. Sold the Jun 17.50's for 1.30

http://biz.yahoo.com/prnews/080513/nytu073.html?.v=101

[Joe Stocks]

STV - Yikes! Just noticed they report after the close. My STV buy was actually an add as I have been holding for awhile in other accounts.

Interesting excerpt...

>>>With access to digital programming booming worldwide, particularly in China, providing the technology to control access to it is proving to be a booming business for China Digital TV. It makes the smart cards that go into the set-top boxes, as well as the software that the industry needs to distribute digital programming.

Revenue for the Chinese conditional-access company hit $55.5 million last year, up 82% from the year before, and has grown at a compounded rate in excess of 148% over the past three years. Yet shares plummeted after a brief, meteoric rise following the company's IPO last year. After reaching a peak of $55 a share, shares now trade below $20 a stub. However, with the summer Olympics quickly approaching, demand for access to view programming will be increasing.

CAPS investor MGen thinks China Digital is a mispriced stock right now because of a misconception that it is a "cable company" when, in fact, it has nothing to do with the programming itself:

China Digital TV has consistently beaten earnings expectations ... since the IPO last year, yet ... [it] has seen an overall declining stock price ... through a combination of the overall declining stock market ... plus a popular misconception that STV is a "cable company stock" which should carry a low [price-to-earnings ratio]. China Digital TV's primary product is a high-tech conditional access smartcard ... which recently has even been upgraded by the use of Intel (Nasdaq: INTC) card processors. ... [A] market China Digital is expanding into is a PC card which makes PC's capable of receiving and displaying premium HDTV.... China Digital is a Tech sector company, not a Cable TV Station provider. ... [It] is well-positioned to be a high growth company for at least the next several years.<<

http://www.fool.com/investing/high-growth/2008/05/12/5-stocks-approaching-greatness.aspx

[m_winston]

DFS covered calls

Average cost of DFS = 18.77
Sold the June 20's for .70

[Joe Stocks]

STV - long at 20.56. Sold the Jun 20's at 2.50

[jwalk]

Now that one moved quick. Makes me wish I hadn't written those calls so quickly... Now trading 2 points above my exercise price. Just wish I was really this good a pickin' 'em.

[Joe Stocks]

ReneSola net income triples, lifts revenue outlook

By Steve Gelsi
Last update: 7:37 a.m. EDT May 14, 2008

NEW YORK (MarketWatch) -- ReneSola Ltd. (SOL) on Wednesday said first-quarter net income nearly tripled to $17.7 million, or 28 cents a share, from $6.8 million, or 14 cents a share in the year-ago period. Revenue rose to $123 million from $36 million. The China-based solar panel maker lifted its 2008 revenue outlook to $570 million to $590 million from its earlier view of $530 million to $550 million. ReneSola said the May 12 earthquake that struck China's Sichuan province did not damage its facilities and construction remains on schedule. "ReneSola does not expect the earthquake to have a material effect on its operations in Sichuan province," the company said.

[Joe Stocks]

Nice buy on SOL! Another great idea for the solar area. Earnings tomorrow. I think YGE reports Thursday. I will check out SOL further. Kinda loaded here on solars but I will be very interested in their earnings report. As much as CSIQ has moved I am thinking of taking profits and maybe moving into something else.

[jwalk]

SOL
Bought for 19.73.
Sold Jun 22.5s (SOLFX) for 2.00.

[Joe Stocks]

JRJC - Long @ 22.95, sold the JUN 20's for 4.40. Downside protection to 18.55. 7.8% return on money at risk - 6.3% if taken out at $20 or above.

39 days until expiration.

[Joe Stocks]

Canadian Solar gains in pre-market after Q1 profit
(LDK down in pre-market. Own both. Covered calls on all. LDK fine because my May calls are at 35. CSIQ I will miss most the upside with June 30 calls.)

By Steve Gelsi
Last update: 8:26 a.m. EDT May 13, 2008

NEW YORK (MarketWatch) -- Canadian Solar Inc. (CSIQ) shares are up 17% to $40.01 in pre-market trades on Tuesday after the company said it swung to a first-quarter profit of $19 million, or 61 cents a share from a loss of $3.9 million, or 14 cents a share in the year-ago period. The Jiangsu, China-based solar panel manufacturer said revenue for the three months ended March 31 rose to $171 million from $17.5 million in the year-ago period. Analysts surveyed by FactSet forecast earnings of 32 cents a share and revenue of $151.2 million, on average. In the fourth quarter, Canadian Solar reported net income of $5.9 million on revenue of $127.5 million.

[Joe Stocks]

YGE - Hmmmm... Buy at 23.00 and sell the MAY (5 days till expiration for 1.65.

The risky part is that they report Thursday.

[gtober]

Joe, I had to go back to remember SRS, but I once I did I do remember thinking that it was a good idea. SRS is at support, for what it is given it's shorter timeframe. I think we've hit a lull in real estate bad news. I think the overall economy is going to be important, and if the economy does better as some seem to be predicting, then maybe real estate will be OK for a while. Interest rates are a lot lower too. However, all that doesn't seem to be helping prices.

[Joe Stocks]

NOV - Bought back May calls and rolled over into June. Nice premiums.

[Joe Stocks]

SRS - Just added another 100 shares at 86.02. Sold the June 80's for 9.40. Protected way down to 76.62. 4.4% (44 days) return on the money I have at risk.

[Joe Stocks]

Thanks. That one account really stinks up the place. I run ten accounts and that one reminds what not to do. One thing nice about covered calls is that time works for you as where naked puts and calls time works against you. When that one account was losing so much I figured someone on the other end was making it. I figured that other side should be me.

Did you see that SRS trade? I had no idea that real estate would be doing so well. Do you have any ideas why? Folks playing the hefty divs because it is hard to get interest income anywhere else? Fingers crossed that it is time for SRS to reverse course.

[gtober]

Wow Joe. Nice results. Keep it up.

[lexi2004]

Joe,

Thanks for sharing your experiences. What you say has a lot of merit and there are times I say I won't play options again due to foolish losses. However, I do think playing the DIA long or short depending on the area of the range you are in can be very lucrative. Also, if very selective, I think options can be great too. Have to confess that I'm not "very selective" too often.:)

BTW...congrats on your very successful 2nd account.

Lexi

[Joe Stocks]

Hi Lexi, One thing I like about covered calls is that I have terrible experience in playing call/puts naked. About 7 years ago I put about $25k in to two accounts over about three years. One account I solely do naked options on. The other I do not do any naked options and only do covered calls and long positions.

Today the first account has a balance of $16,000. The second account has a balance of $165,000. That tells me something. "Joe Stocks you aren't a bad trader but you suck at trading options by themselves!"

Needless to say I have changed my strategy on the first account. After the first of the year when the balance was about $14,500 I switched to covered calls. I have one 09' leap option left in the account, and can't wait until it expires. I does remind to stay away from straight options. It is a Jan 09' $25 leap call for CFC. Today it is basically worthless.

Good luck with yours.