Covered Calls and LOCC

Disclaimer: The prices used in this blog post are a snapshot in time and are given for example purposes only. Do your own due diligence and research. Trading in the stock market can be risky.  WBC

   It's most difficult to just jump into a particular trade for generating cash flow. I get in letters and trades from all over the country. As this blog gets more popular---with questions, trades and examples---it will even be more fun.
   This is not a great market for writing covered calls, but it is a good one. There are still some exciting deals out and about.
   For example: Eastman Kodak (EK). The stock is $3.50 (it's down but they're coming up on the conclusion of a big lawsuit) and the July $3.50 call options are 35 cents to sell. Look at the numbers. 1,000 shares would cost $3,500, or $1,750 on margin.  Sell the calls on a covered basis (you own the stock) and you'd take in $350. that's for the next two weeks. You would be agreeing to sell your stock for $3.50 (that's a break-even). There are some better ones, but this is not bad.
   I always look at AMD, MU (these are both down right now) and some people have recently played TIVO. However, look at MBI. The stock was at $8.70 and the July $9 calls were 24 X 27 cents. The August $9 calls were 60 X 63 cents. Let's do the August for this paper-trade. Remember, prices here are a snapshot in time, and this is for educational purposes only. 1,000 shares would be $8,700, or $4,350 on margin. Sell the $9 calls for 60 cents, and take in $600.  In writing a covered call you give away the upside movement of the stock---at least everything above $9.00 in this case.  You get paid $600 to take on the obligation to sell your stock at $9.00, and just think if the stock goes to or above $9.00 and you get called out, you'll make another $300 ($9.00 [-] $8.70 = 30 cents X 1,000 = $300). Not bad for $4,350.
   And don't forget about the "BUY-Back" which let's us end this trade and regain control of your stock. One more point. I wrote extensively on LOCC, or Large Option Covered Calls (my old book, "Free Stocks") and with some stocks this strategy is alive and well. It's for people who want to park some of their money and let it ride. Look at the  $9 calls for Jan. 2012. They are going for $1.65 X $1.70. Again, a thousand shares, and you could sell the $9 calls out six months for $1,650. It's the little train that I said, "I can." It's the Chattanooga Choo-Choo. And think that's $1,650 in your account which could buy more stocks, apply toward your margin amount, etc. I'll be working with the publisher to update items in Free Stocks and combine it with other topics. Watch for it.
   I also like LULU (Lululemon Athletica) right now. It's coming up on a 2:1 stock split, next week. Look at the options on RENN (RenRen). I'll write more on two or three more trades tomorrow. Please send your questions or comments.
Thanks, Wade
BLOG-MEISTER'S NOTE: The above covered call, used for generating monthly income, is explained in detail in "Stock Market Money Machine." This is a single topic book, by Wade Cook. You can order your copy at Amazon.com (E-Book) or Lulu.com (not the above LULU) for an e-book or a soft-bound book.