The Covered Call

I received several questions today regarding a few option trades that I did earlier on $CRM and $DE long positions that I have so I thought I would provide some detail on why I did what I did and what the potential scenarios are.

Here is a summary of current positions with these 2 stocks:

  • I am long $DE at 82.45 from 11/21
  • I am short the November 30 weekly 85 Call on $DE at $.42
  • I am long $CRM at 156.40 from today, 11/23 (after closing a short position I held over Thanksgiving, I did a U-turn trade) — a 2/3 position
  • I am short the November 30 weekly 160 Call on $CRM at $2.28 (2/3 position)

Here is what I have done today regarding these 2 stocks:

The point on selling the Calls against a long position in this scenario is to create some cushion for any minor pullback in price. If this pullback does occur, then at that point I consider doing one of the following:

  • buy downside Puts for protection (using the proceeds from selling the Calls, creating a normal Collar)
  • sell the long stock position and then I am naked short the Calls
  • do nothing, hold the position as-is until expiration next Friday. On expiration day, I then can decide on what to do with the long stock position and/or short Call

 

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