Covered Call Writing for Income

Hello – Another tough week with the ups and downs from the French elections and new Euro worries with Greece basically without a government. Monday and Tuesday sold off at the beginning and managed to gain into the close, showing some strength. We got a break and a green close Thurs and the rest was weak.

The tape was mixed with leaders holding to some extent. I went into this week with just the FFIV 125/120 for $.45 and the STX 30/27 for $.44.

Late on Monday I added Amazon 220/215 for $.75 and Lulu 75/72.50 for $.30. For covered calls I sold both the Pot 5-11 43 and 44 calls for $.29 and $.12 respectively.

We never got a major oversold bounce and may not even get it next week. Any momemtum oscilator you look at is showing probably something in the -48 to -50 range and oversold is past -70. We can, of course, get a pop on some kind of good news. The tape feels heavy, especially with selling into the Friday close.

The results of the week were positive, even though Cisco’s bad Q tanked tech and Fossil’s bad numbers hit retail. FFIV dropped about $5.00, then rebounded and finished out of the money. Lulu was more fragile and ranged in the $173 to $175 area. I was watching into the close and when it failed to break short term resistance in the $174.50 area for the 3rd time (5 minute chart), I closed out and took a $300 hit. Lulu did not tank, it did close below $174 though so a bigger loss was avoided.

Green for the week across the board. Overall, portfolio is suffering from Pot and LVS tanking.

Heading into the 5/19 expiration, here what I did.

Amazon – $220/215 again for $.50

Sold calls on POT – the $42.50 for $.26

Nothing on LVS – could not get filled believe it or not. Market makers were jacking for a penny and I let the order expire. WYNN has been beaten hard since it’s earnings miss and both are overdue for a bounce since they are at some major moving averages. WHen LVS was below $50, the $1.00 strike prices were handy – now with each increment on $2.50, the premiums are feat or famine with always a chance of a sudden run up.

New buy write — bought shares of Seagate – STX at $31.35 and sold next week’s $31 call for $.91. Ownership at $30.44. STX has been a champ in this tape, recovered from Western Digital’s news about how the floods affected their margins – hugging the 10-day EMA and well above the 20, 50 and 100.

My strategy was to buy a little downside protection, hence the in-the-money call and be called out next week. If STX stays at or above $31, I will happily surrender the shares and put $.56 in my pocket for the week. This is about a 1.8% return for the week.

This is the way I used to make a lot of income monthly. So when the charts present themselves, I will be looking to do more of this in addition to the spreads.

Spreadwise, I wrote Amazon since it has been showing strength all week. I left FFIV alone for awhile and other usual suspects like CRM, GS, IBM, CAT are not looking good. When we get through this patch it will be time to look at many again. Stocks on the radar include Visa, Mastercard, Home Depot, and more tech like FFIV and even Apple when things settle down.

These are difficult waters to navigate for any trader. Make sure you are in your comfort zone of risk and reward.

Cheers

Tim

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Hello- It’s getting to be that I REALLY hate Fridays! Yikes …

All week our credit spreads were performing well despite the ups and downs. Seagate (STX) fought back and hit over $32 – everything was well out of the money and expiring nicely. A look Thursday was the same as time premium began to shrink due to expiration Friday.

ADP Jobs reports are always dicey, so there was a probability during the week that Friday could melt down. Then again, given the world situation, a mellt down or boost could also happen at any time.

So Friday was awful and most of the tape for the day was red. I am doing this from remote without my numbers, here is what happened.

LVS tanked again, yet rallied up over $54 to close a tad above that. I wrote the $55/$52.50 so closed that out for about a $200 loss. WYNN has now chnaged earnings dates three times — now they are supposed to report 5/9. Can’t be good news when they keep extending, so am looking for more downside here and did not roll over LVS and did not write any new WYNN spreads. Support for LVS at the 50 day is about $52 or so. There may be some intraday trades here next week.

IBM sold off unexpectedly and started acting really weak – sea sawed the day above and below the short strike of $205 (we had the $205/$200). I closed this out about 3PM and was profitable, not by much though, maybe $100 or so. Better than losing.

CRM, sold off and never recovered. It sure looked like it was running and was well above the $155/$150 spread. I closed this out for about a $400 loss. CRM can’t make up it’s mind for now and earnings are on 5/17. I am just lettng this be for now.

FFIV sold off almost $3 and still closed out of the money for us – so we picked up a win there.

STX – another up and down ride closed below the $31/ $30 and was still profitable by a little.

If I count the $44 POT calls I sold for $.38 or something, the week was slightly above breakeven. Given the feeling on Friday, I was happy with that.

it felt as though we had some capitulation Friday – jobs sucked, yet not enough to warrant the Fed from acting and not enough to spur on the recovery either.

Sarkozy was about to be thrown out and eyes were on Merkle on what is the relationship now. Europeans hate the austerity and cuts and are throwing out their leaders in protest. I think the market had Sarkozy priced in — not so for the snap election also this weekend in Greece. And Spain looms; the #3 economy refusing to admit it has problems (like all the other problem children) and is too big to fail. Oh yeah – I forgot to mention that the president of the Euro central bank says no more easing.

So, this does not look like it will end well. What does that mean for US markets? More trouble in the short term until we get some good news to rally behind.

I wrote the $125/$120 for FFIV for $.40 or something and also the STX $30/$26 and I can’t remember the premium. FFIV stayed above support in a terrible tape and STX got caught in the overall drabness of the market.

The market needs a few days to digest all these variables and I wanted to be somewhat flat. My midweek if we hav enews, then I may write some spreads for the 5/19 expiration.

All for now.

Tim

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Hi – I whiffed on the update for last week. Lot’s of things going on. If anyone reading this has questions, please email me or drop a comment in and I will respond.

Up and down week — CRM and CF expired. I did add a new position last Tuesday on Seagate (STX) after a strong report and nice bounce. I sold the $29/$26 put spread for $.40 on 8 contracts. Thursday’s close had STX at $31 – easy money – right?

Friday Western Digital said that sale or margins were still being impacted by the floods in Thailand — BOOM  – STX dropped to $28 or so in a nanosecond. Just one of those things where all you can do was be amazed.

On Thursday, with what I thought was certain expiration, I sold a $31/$30 spread – yes, a $1.00 spread for $.40 on 10 contracts. Great risk-reward.

Friday, things were not looking good. Then STX rallied and ended over $29. I did close out the $29/$26 for about $250 out of the original $320 profit. Still underwater on the $31/$30.

Today 5/2 – STX is sitting at $31.88 and looking strong in this down tape. This will be a good write for awhile.

When Apple popped last week, the May 19 $580/$575 spread I wrote to recover the hit from the prior week became instantly profitable into the +$500 range. I took the money. Apple has been hammered since and I want to sit on the sidelines for a while. Still $2K to make up and patience is the key.

Other writes this week:

CRM $155/ 150 for $.95 – risky – last week bounce to a $152 low. Earnings nexgt week.

LVS $55/$52.50 for $.43 – my old friend looking to hold $55 – the 50-day is $53

STX $31/$30 for $.40 – new and recovering and looking very strong now

FFIV $130/$125 for $.55 – great earnings report, consolidated a little and now ranging

IBM $205/$200 for $.47 – recovered from earnings and is looking strong again

All were limited positions – 4-5 contracts to manage risk. So far all are holding. FFIV down more than usual today, LVS bouncing around above $55 — WYNN reports on 5/3 and it may affect LVS. Everyone else has reported.

For next week I am looking at adding Sears Holding – SHLD – great report and acting strong. It has weeklys, so I am looking at them as well as the May 19. Maybe WYNN depending on the report.

Sorry for the delay.

Cheers

Tim

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Hi – Tough week with all the ups and downs — on the easy front, I exited Wynn early with 92% profit after a pop and it did close still high at $129. Briefing.com had earnings on the 19th and somehow that has been changed to 4/26, then LVS is now 4/25 (was 4/26 originally). Hate when this happens!

CRM $155/150 closed safely, so two out of three in good shape.

Apple really sold off after a spike back up. It looked like it would pin early Friday around $600, then volume came in at the lower strikes and is closed $573 or something. We got hit for the max loss since we had the $600/595 spread with 6 contracts – $3000 less the $450 premium for a $2550 hit. That sucks!

CRM, WYNN and Pot calls made up about $1100 – so down $1450 for the week, still decent for the month. I rolled the Apple into the May 19 $580/$575 for about $2.50 taking in about $1250 in premium and giving some time. I wrote that before noon and Apple looked like it was holding around $580 — not! It tanked in the afternoon.

With earnings next week, a good report can make Apple pop. Whether it will climb and stay at higher levels depends on the overall market and sentiment. There are bear flags everywhere – especially the S&P. This does not mean we will tank for certain – anything can happen. There is a Fed meeting this, French election run offs and some inportnat economic data.

With POT and LVS reporting next week, I did not sell any calls or put spreads. I did take some small positions with CRM again with the $155/150 – CRM sold off a little on a breather and still is acting strong. Earnngs are in May, so time to settle and maybe run.

CF was up again this week and is really coiling to break the $191 barrier. This is one volatile stock and POT earnings on 4/26 before the open could affect it, strength is strength though so I took a small position and wrote the $180/$175.

Slim week and a slim month with not writing stocks due to earnings. In the next couple of weeks when the market plays out one way or the other, there are lots of solid writes out there. I will be looking at adding Bidu back to the mix, FFIV once their $14 earnings pop is digested, and also looking at Seagate, new Weeklys and a great earnings report. I may actually buy some stock and write weekly calls and hope to be called out each week – we will watch the price action.

Boo on Apple. A couple of lessons — limit position sizing so the risk is manageable given the size of your account. Be pateint and give youorself more time to mitigate the loss and obtain a profit.

Cheers

Tim

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Hi – Someday we will be telling people we traded (hopefully successfully) this market!

Apple is unreal -down over 40 points and just about filled a gap around $568 – actually filled the upper portion at $571, which was also the 23.6% Fibonacci retracement, probably took out everyone’s stops, then blased back yesterday with +$29 and has traded as high as $620 today – now backing off at 11AM eastern to about $615 — whew — we went from max loss where it blew past both strikes to well in the money!

And it’s only Wednesday. Market makers are not giving up time premium and the spread is still not profitable, so need to hold until Friday.

On the other hand, WYNN, which tanked to about $122 (we are short the $125 put) and change has spiked up today almost $7.00 in anticipation of earnings tomorrow. Cramer has been yelling this is a sell and that always makes things worse. So with today’s pop, I sold and took about 92% of the max profit. There is no reason to risk holding over earnings and having something bad or odd happen and this to sell off. The extra 8% is not worth it.

CRM spiking today on real strength – so things are looking okay so far this week (obvisouly they were not on Monday).

Relative to Apple, IF it tanks at the end of the week or had stayed in the zone in the $585 range, my plan was to resell the May $600/$595 for about a $3.00 – $4.00 credit – give more time and get through earnings and with 6-8 contracts, the loss would have been mitigated. Another alternative was to see how the April 28th Weeklys were priced and maybe use them. Message is, these posiins can be managed.

Chat at the end of the week or sooner if anything breaks.

Tim

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Hi – Being a writer with NASDAQ stocks this week, this was NOT a good day – so I thought I would make a few comments.

Apple – not a dip buyer in sight – down almost $25 heading into the close. Well past the $600/$595 strike so the max loss is a reality if it stayed here or tanked further. There is no time to adjust on poistions like these.

That’s why money management for spreads is critical. Everyone has their own trading rules and plans. I try to keep positions to less than 2% of the overall portfolio and to do this, you just trade less contracts. That way no one position is going to kill you.

As of now, all three spreads – Apple, CRM and WYNN are underwater. CRM really at the money, WYNN down $2.00 with a good chance of an earnings pop on Thursday — Apple is the elephant in the room. Earnings on the 24th so this could be taken down more so the market makers can profit from a good report – it’s been done before.

Apple may reach a point where it’s too irrestiable for those salivating over another blow out Q. So, glad it’s only Monday and the rest of the week will play out.

Just wanted to point out that even though we trade low delta spreads, these are the week’s when statiscally things do not perform – meaning if you have a .2 delta, then 2 out of 10 trades will not go your way. That’s why money management is key.

Hang on — it’s going to be an interesting week.

Cheers

Tim

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Hi – Am writing this just after the close — what an UGLY day! it was bad enough all day and at about 3:25, things just went south.

Always nice to wake up and have 100% of your positions SAFELY in the money and then watch the fun! Across the board, Apple was the only problem child – sheding $17.54 and blowing past the short $610 put. This can happen and is part of the game — once it broke $610 – it ripped from around $614 and the next few seconds literally it was $609 – gave you no heads up. Later in the afternoon after lunch it spiked up to just past the $610 and I got out — all told was about $20 in the money after commissions – better than the loss.

The WYNN, LVS and CF spreads all expired. CF was dicey all week and was underwater by $2.00 at one point then popped up about $6 on Thursday and held farily well today. WYNN sank to $122 and change and spicked back up — this one has been shaky at expiration for the last three weeks. Fair disclosure, this looked like it was following Apple into the pits, so I bought back the short $125 puts early in the day – still made a nice profit for the week – about $400 out of the $590 – so not bad.

For this week, I kept it really light — sold the CRM 155/150 for $.80 with 5 contracts and Wynn 125/120 AGAIN for $1.48 and 3 contracts. WYNN has earnings 4/19 – next Thursday and so far the casinos have been strong. CRM was one of the only stocks in the green today and earnings are in May.

Yesterday I sold the Apple 600/595 — wish I didn’t, it is what it is. Still above ground and am thinking there will be a bounce next week. With earnings on Tuesday April 24th, the market makers may drive this down more, or the dip buyers will come in expecting it’s typical run into earnings. Either way I took the weekend to erode some time premium.

Hate this market and this choppiness could last for some time until there is something one way or the other to give it a solid direction. For now, go with strength and keep things light.

Have a good weekend.

Tim

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Hello – I hope everyone had a nice holiday.

My last update I was camped out in an airport managing positions. Everything turned out fine, although for WYNN it was dicey right into the close. I bought back the $125 puts for a song and was still profitbale with the position.

I was almost going to go flat, then did a few spreads on the strongest stocks I had been writing. I did LVS $57.50/$55 and WYNN $125/$120 and the CF $180/$175 and for calls I sold the POT $47.50 at $.23 and the LVS $60 for $.37.

Down week across the board, strength is strength and all expired, so a nice cash flow week.

With the jobs report due on Friday, I was in another quandry. The conservative move was to be flat. Again, I went with strength with the leaders and wrote Apple $610/$605 for $.80, LVS $57.50/$55 for $.48, WYNN $125/120 for $$1.18 and the CF $180/$175 for $.50. Implied volatility was higher so these premiums had some juice.

Terrible jobs report! I was actually surprised since these numbers are based on actuarial statistics of a number of variables and is more of a political vehicle (my opinion) versus “real” jobs numbers from ADP. Anyway, Futures slide Friday and are down today as I wrote this — S&P holding well above the 1375 support.

I went half positions on everything, so low spread requirement – as of 1PM EDT, only WYNN is underwater – all the others are holding with Apple and LVS shoiwing real strength and well in the green. CF is down $3.50 and bouncing around. WYNN is dancing around $124 and is just flat. It has a good chance of filling the gap like the others depending on the rest of the week.

No new economic news is due. Alcoa kicks of earnings tomorrow and has pre-announced that year over year they will be down. Cramer is saying this is bad and will affect everything. Who knows. Last Q was exactly the same and the stock actually went up.

I got back into Apple since earnings are in a few weeks and it typically runs up. CF has been bucking $191 and coiling and LVS the same around $60 — anything can happen for sure. For right now, I am writing the tapes that are the strongest. If I have to roll out, then no big deal, these are all solid plays.

I am letting FFIV and CRM alone for now and just sticking with the above with lighter positions until the market plays it’s hand one way or the other. In the meantime, the implied volatility has spiced up the premiums and if everything expires, it will be a 20%+ return on margin for the week — that ain’t bad.

Cheers

Tim

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Hi — This is an early recap due to travel; don’t know if I will be able to connect after tomorrow.

Basically, all the window dressing buying was over by Tuesday – stocks usually have two days to clear so stocks being bought need to show up before the 31st. You can see the results Wed and today when the buying was over and the selling began.

The good news was the market rallied around 3PM today and some of the red disappeared. This bodes well for tomorrow (hopefully).

We wrote GS, CF and Wynn this week with reduced positions, not feeling much market love. On Tuesday I thought I was a moron and by close on Wed I had been elevated to Mensa candidate — not.

As of the close GS is well above the short strike, Wynn is at the money and CF is about $.80 below. Given the open, where CF was almost $4.00 under with Wynn $3.00, this was a strong come back. I will be camped out in the Phoenix airport until the close to see what happens — if I have to roll, no big deal. I am surprised the Ags sold off they way they did, even POT — with all the huge volume into the sector last week.

I may start the week flat; it depends on market action and time. Now using Weekly, Fridays are the worst  travel days. Also, without some really good news, we could see more selling – especially if Europe gets back on the radar and tensions with Iran rise again.

That’s it for now.

Cheers

Tim

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Hello — A down week that ended at least a little green. No shortage of speculation if the pull back this week, as shallow as it was, means more to come. We need some news one way or the other. If the Euro situation rears it’s head again and the talking heads focus on China slowing, then who knows.

What we do know is that we had a good week with all spreads expiring worthless. FFIV was under a little pressure midweek when an analyst downgraded them to Hold from Outperform.

Apple had something weird happen, mini flash crash midday down almost 60 points – my trading screen never showed the decline – stock was hovering around $598 and I was showing the mx loss for the $555/$550 spread! About 10 minutes later it was back to normal – the daily chart had this huge tail, that is now gone from the chart — hope someone’s “fat finger” did not cause any stops to trigger!

I went very light this week – partly due to travel and partly I wanted to see where things would go before committing more spreads.

On the buy writes, for LVS I sold the $60s again for $.28 and for POT, sold half the position at the $47.50 for $.21 – POT has been lagging the sector. With great volume got to almost $47.50 and could not break through — meanwhile CF was /’ is on fire. So I left some run for it to run since the Ags are now getting attention.

Here is spreads for this week

GS sold 8 for the $120/$115 for $.30 – only got a partial fill. The banks were strong on Friday and that is a good sign. This credit was $.50 at the open and getting more coffee cost me $.20!

CF sold 5 $180/$175 – went into a half position here since CF is volatile and can easily pull back. It has been acting strong here and was way up after I sold this position, ending +$.6.32 for the day.

WYNN – sold 4 of the $125/$120 for $1.00 – smaller position in case everything pulls back – limited risk for the $400 premium.

I did not write FFIV, CRM or Apple this week – wanted to be light and only went with the strongest. When we get some clarity on which way this market will move, I will add more positions and make more money. Total premium for the week about $1500 a a couple bags of chips.

Have a good one.

Tim

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