June 16, 2010

The bears have won so far this morning, but it seems that the bulls are rallying, atleast in my stocks.

TICC and FTR are down the most, with LYG, CIM, and BGS coming back towards zero.

Since selling covered calls on my stocks is not yield very much revenue, I've looked into selling in-the-money covered calls. This simply means that you would sell a call on your stock at a strike price lower than the current market price of the stock. This can be a risky transaction, because if the stock prices goes up, your stock WILL be called away. I would only suggest this strategy for strike prices that are above what you initally invested in the stock.

I looked at some theoretical numbers for doing this with FTR. I own 200 shares of FTR, thus 2 options contracts. I decided that I'd be willing to sell a covered call at the 7.50 strike price in July for .65 per share, when the market rate of the stock was around 8.09. Thus:

200*.65 = $130 - commission = $119.55

Now, we should keep in mind that I bought FTR at 7.80, so I risk selling my stock at a .30 loss.

(7.80 - 7.50) * 200 = 60

119.55 - 60 = $59.45 profit. This is about 4% return, and it raises to about 6% total return when you count the .25 dividend that I am on record to recieve. I would classify this as a Bearish Strategy, because I want the stock to go down so I can keep the $119.55 and not sell the stock.

That's it for now.