The Covered Call

One of the most common Options trade is to own stock (long) and sell Calls against the position (the covered call). I have a few existing positions where I have done this and thought I would highlight the $AVGO trade:

  • I am long stock at $54 from 1/14/2014 (a Breakout play)
  • I sold the February 55 Calls for a $2.21 credit on 1/16/2014

Now let’s take a look at the Daily chart to see how things currently stand:

AVGO_B

Price has pulled back under the $55 level (a Breakout back-test in progress) but remains above the initial long stock entry. The Option premium collected is providing a nice cushion (down to $51.79) so it looks like the trade is doing fine despite the market weakness this week.

It will be important to monitor the $54 level (I will consider putting a Stop there) but also to watch MACD as it looks like it wants to cross down.

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