Covered Call Update

Back down to earth for a moment.

In the simplest (and safest) option strategy that exists, two of my drug company stocks were called last weekend – DNDN and ELN.

Today I began replacing them.  I still have a handful of others, but with option prices reflecting declining volatility, I’ve taken to selling options in the second month forward rather than the near expiry.

The reason to sell options with six or eight weeks left in them is to lower the cost basis of the stock faster by taking in larger premiums, and to avoid paying quite so much in commissions (and bid/ask spread) entering and exiting the positions.

I find it quite strange that listed options trade today with a wider bid/offer than they did in the 1970’s when I first traded them.  Why is that?

Elan took a whacking this AM, no doubt following the European market south.  By April, I’m sure lots of people in Ireland and England are thinking about getting away for a quick holiday, but they get to see the effects of Iceland’s Revenge on their local news, showing stranded travelers and empty departure gates at their airports.

No jaunt to the Canaries or Ibixa for you, Bucko!

I’ll probably not write the calls on Elan today, but wait instead for it to recover some of the damage.  Then I’ll look at both June and July.

Dendreon premiums are still sky-high, as final approval of their prostate cancer life-saver may come in the next few weeks.  Buying the stock for $38 and selling the $40 calls for $5 in May is an easy choice.

hh

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3 Responses to Covered Call Update

  1. >> Dendreon premiums are still sky-high, as final approval of their prostate cancer life-saver may come in the next few weeks. <<

    By May 1 on fact. Since it is a saturday, it really is May 3

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