Using Options for Income & to Provide/expand a cushion

One of the benefits in trading Options is that they can provide several benefits to an overall trade. There are situations where you can in fact benefit from more than just one. To illustrate, I will lay out my current trade in $DDD to show how I get Income & build a cushion for any pullback that may occur.

I am Long the stock at 40.18 from 5/10/2013
I have sold premium several times, but here is the latest:


What this means is that I have sold to open the June 47.5 Call & collected 1.50 in premium – the Income part. So where is the cushion part? Well with this collected premium 2 things happen:

My gain is capped at $49 (strike of sold Call + 1.50 premium collected)
The 1.50 premium provides additional cushion below my entry of 40.18

Price is currently above the $48 level as I write this so the Call is now ITM (in the money) but not yet capped. If it is still capped on Friday, I have 2 choices:

Let the stock get called away
Move the Short Call to a later expiration

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