Opened MCO covered call

I've sold a covered call against my long-standing shares in MCO. The premium on the April call option was 75¢.

I bought the stock a year ago for $29.85. The analysis of this position only is unpromising: A 10¢ loss if the stock closes above $29, and a 75¢ gain if it closes below.

But, there's a history here. I've sold covered calls twice against these shares already, once for $1.96 and again for 70¢. Moreover, MCO pays a dividend, which I've collected four times, for 40.5¢ per share.


So my true basis is $29.85 less $2.66 in premiums less $0.405 in dividends which equals $26.785.

For this new transaction, using the proper basis, the gain is 2.8% if the stock closes below $29 (and I keep the shares as well), or 11.1% at $29 and above.

This is a perfect example of how covered calls can go right.

Why sell at $29 rather than waiting for a further increase? The psar has been in bull mode since March 5, and the macd since March 2 and its still rising.

I'm looking at the chart, today's candlestick and the adx.

The current price is a in an area where the price has reversed before, in January and July 2009. So if the pattern remains true to form, then I would expect another reversal downward. The sto is in overbought territory and has turned down toward the neutral zone, although it has not yet crossed. That's a sign of bears ahead.

Today's candlestick shows a hesitation pattern: A narrow body and short wicks and either end. MCO is burning the candle at both ends.

And the adx is at 16, a level that indicates whipsaws are likely. And what are whipsaws, after all, but another word for reversals.

Even if my chart analysis and technicals are wrong, it's still a no-lose position for me.

I wish all covered calls were that way.

I'll be tracking this position in the daily Morningline, which I start posting around 10 a.m. Eastern, at www.timbovee.com.

Abbreviations:
psar - Parabolic Stop and Reverse
adx - Average Directional Index
pps - Person's Proprietary Signal
ma20 - 20-day moving average
macd - Moving Average Convergence-Divergence
mfi - Money Flow Index
sto - Fast Stochastic