Replies to post #189 on Covered Calls

[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.