Monday, December 13, 2010

Trade 3m (mmm) - cover calls

The stock bounced over 1% as hoped for when the position was initiated last week.

Sold Jan $85 calls for about $2.50.

- Stock stays flat from here or rises which would cause the stock to be called away at $85 in 5 weeks. That would result in $1 cap gain in the stock ($84 to $85) and $2.5 yield from this option play for a total of $3.50 of 4% in 5 weeks. (40+% annualized)

- Stock falls back to $84 support level, in which case I would intend to cover this option position once it achieves a profit of over 1% and then let the original $84 purchase stand on its own.

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