January Option Investing – EDC Covered Calls

When DRN cleared a resistance level last week, I was REALLY tempted to go all in for the rest of the month. However, I thought about how hypocritical that would sound here on my blog, and decided to practice what I preach (use money management rules).

One lesson learned from last years covered call trading related to meeting cashflow goals; I need to use leveraged ETFs. The volatility creates option premiums high enough to compensate for my relatively small account balance without totally destroying my money management rules.

Long story short, I’ve had my eye on EDC for a while (an Emerging Economy ETF), so I entered some covered calls…just in time for some Egyptian unrest!

Gross Cashflow: ~$630 USD


January Option Investing – DRN Covered Calls – Part III

I decided to sell $58 Feb calls on my remaining DRN shares to maximize the benefit of time value. Even though DRN is still in an uptrend, I am content to sit back for the next week and see how it behaves relative to the general market.

Gross Cashflow: ~$1130 USD

January Holdings Update

With a close on Friday somewhere north of $56 per share, a majority of my DRN shares were assigned over the weekend.

The market uptrend has encountered some selling pressure over the past few weeks (i.e. distribution days). So generally speaking, now is not the time to be entering into big positions.

However, DRN’s price action has remained strong; according to my trading system DRN is still in an uptrend.

What to do, what to do. The good news is that asset prices may finally be returning to their normal, “uncorrelated” selves (http://www.ritholtz.com/blog/2011/01/there-goes-the-neighborhood-correlation/).

2011-01-21 – Last Trading Day before Options Expire

Well…its that time of the month again.

For January expiration, I have quite the spread of strike prices for my DRN position (50,51,55,58). Given the recent price swings, it will be interesting to see how many expire verses how many are exercised. That is one lesson I learned well last year; no in-the-money buybacks on high volatility positions.

To be honest, I’m more excited about next Monday, when I get another chance to place some sell orders and generate income.

January Option Investing – DRN Covered Calls – Part II

Back in December, I sold covered calls twice using DRN

  1. Entered the day after December option expiration for max time decay
  2. Took advantage of a mispricing opportunity

I monitor DRN price action daily. If I notice the price has been volatile, I’ll check out the option premiums. There are times when you can find options 2 weeks from expiration trading at premiums similar to their 4 week levels.

Since DRN is still in an uptrend, I’m open to adding to my position, especially during this recent mini-correction. Long story short, I added to my position today, and sold a few more options (Jan 22 $55 Strike).

Unfortunately, I messed up my order, so I actually sold in the money options (55), rather than out of the money options (56). I’ll still profit on the trade, but that is not a mistake I take lightly.

Gross Cashflow (today): ~$548 USD

Related Posts:

Income Trade: DRN Position Initiated
Income Trade: DRN Position Dividend
Income Trade: DRN Position – Updated

January Technical Analysis – DRN

DRN Price Chart

DRN Price Chart - 2010-01-07

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