The Covered Call starring the Triple D

Had to do that.

Since you are here anyway, I really want to layout the Covered Call trade with $DDD as the example. I am currently long and have been selling upside Calls against the stock as it moved up. When this is done at the same time, it is referred to as a buy-write. When you own stock and then sell Calls against later, it is referred to as a Covered Call.

Yesterday I made the most recent adjustment to my trade by buying back the short May 47 Calls (had been sold for .85) and then selling the May 50 Calls. These were going at 2.27 at the time so the premium was significant for Calls that are expiring Friday. This adjustment was at a debit of $2.22 when filled.

DDD_trade_AdjI had made the decision at the time that the key $50 price level would be a good battle area for May expiration so that is why I chose that strike. Currently price on the stock is hovering around the 48.75 area and the May 50 Calls are at a .80/.85 bid/ask. The significant move down in the value of the Calls has helped to offset the pullback in price – exactly what the premium sale is supposed to do.

Just one of several ways to protect a long position.


Note: The “net” on the Option pieces for this trade up to this point is now a debit of $1.37 and my stock entry was at 40.18 (I noted my entry here on my Blog this past weekend).

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