Options

As I mentioned in the last post this is not a great time for options---they seem to be stymied. However, when it comes to covered call writing, there are opportunities everywhere.

For example, awhile ago RenRen (Ticker: RENN), the company in China that wants to be China's Face Book, went public. It came out at around $12 to $14, I don't remember, and shot way up. Recently it backed off to $6.70. Maybe it went down because thru May the whole market went down, or maybe because of the bad news out of China (Accounting Procedures). I don't know, but it's moving back up.
Yesterday the stock was at $8.90. Now, in looking for a good covered call option, I look for an 8% to 10% option based on the stock price. This assumes that you're trying to sell an at-the-money or a near-the-money option. In this case $9. That would be around 70 to 90 cents. Lately we have to settle for 4% and 5%.  Get this, the July (two weeks from now to the third Friday, July 15th) the options are 65 X 70 cents. You can put in a limit order to sell, but if you take the market price (the bid, or first number) you'd take in 65 cents, or $650, assuming you purchased 1,000 shares.

Look at the August Options. Yes, this is six weeks. They were $1.30 X $1.35. That's $1,300. Tell me where $8,900, or $4,450 on margin will earn you $1,300 for six weeks.

Now on to today. An expensive option like this (above 10%) sends up some warning flags. It shows a lot of volatility. However, we're headed into the summer rally, and this stock looks like it wants to go up. Earlier the stock was $9.15, already up from yesterday. The July $9 calls were 75 cents to sell. The August $9 calls were $1.35. It would have been better to do this trade yesterday. The option is only 5 cents higher, but the stock is up 25 cents. Still, an awesome amount of money.
I have a few more examples. I'll write later.
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Answer to Question: Do I have to do trades on margin? Absolutely not. Don't do margin if you don't have to. Margin is a form of debt. Yes, you can double your cash returns, but you have to weigh it out and discuss this with your broker.
NOTE:  I will be doing a Q & A and invite your questions or comments. We will probably divide these questions into topics and either make a book of them, or make them available in a more permanent site, say on the publisher's website.
LULU is doing a stock split (two for one) watch and learn. It splits next Friday. It has moved up from the high 80 dollar range to $114 today. It could move more, so watch it.
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Seek out your own financial professionals for trade suitability. Good Luck.
Wade