Thursday, March 28, 2013

Re-established Covered Calls in EEM

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.


DESCRIPTION: iShares Emerging Market Shares 

Frequent readers know that the ICC Trading Plan has called for selling weekly covered calls against an EEM. This strategy has worked well given the relative sideways movement of EEM, the high implied volatility in the options and options priced in $.50 increments.  Much to my chagrin, this week there were no $.50 increment option in EEM.  I'm not sure if this is a one time development or a permanent change.  In any event, if forced to choose between strikes $1 wide (almost 2.5% wide) the trading plan will have to be adjusted to select options with more duration.  In conjunction with that change CCI will be examining which other index might be worthwhile to decrease the option strikes selcted to one-week to preserve the time diversification of the strategy.
That leads to this weeks EEM  trade described below.

Action: Sell to Open  
Exp. Date: Apr. 12, 2013 (two weeks out
Strike: $43.00 
Price: $.30 
Net Credit/contract: $.29 after commissions

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