Tuesday, November 29, 2011

11/29 Covered Calls

This daily posting tracks my covered call plays and other base positions.

Covered call position DDS -- the retailer Dillards -- flipped into bear phase, below its 20-day low, after an analyst downgrade, falling more than 8%. The Alabama-based brokerage Sterne Agee criticized the depth of the retailer’s post-Thanksgiving-sales price cutting, casting a dark shadow over its Black Friday.

(Just an aside, but I thought stores were supposed to cut prices deeply for Black Friday. Just saying.)

On the weekly chart, the drop places DDS within the lower third of a rising trend and brings it to where it was trading in Late September. The daily relative strength index (RSI) is seven points above oversold territory, and is deeply oversold on the hourly chart.

The stock measured an even larger one-day drop after earnings were announced Nov. 11.

For my account, I’ll be monitoring the RSI on the sub-hourly DDS charts looking for a good point to buy some puts to mitigate the decline. However, with a rapid fall of this magnitude, I’m always on the lookout for a partial rebound.

Different subject: I’ve added a bear position in K -- the cereal maker Kellogg. Since so few stocks met my criteria for covered calls this time around, I’ve got some cash to place, and at this point I’m generally more bearish than not when I look at the market as a whole.

My key reason for bearishness is the state of the S&P 500 -- using its exchange-traded fund SPY, which is trading midway within a downtrending channel that began May 2. It is in the 6th week of decline from a nearer-term lower high recorded in late October.

Of couse, my specific decisions will be based on analysis of the individual stocks and exchange-traded funds. SPY just tells me in general where I need to be looking.

Covered Calls

sym phase trend adx   200/50 40/10

Channels (weekly chart):

BIDU is trading within an uptrending channel that began Oct. 3. It lies within a longer-term downtrending channel that began July 25.

DDS is trading within an uptrending channel that began Aug. 15. It lies within a longer-term sideways range that began March 26.

GDX is trading within a sideways range, with a very slight downward cast, that began Dec. 6, 2010.

LVS is trading within a sideways rangethat began March 7.

RIMM is trading above a downtrending channel that began Feb. 21, but is still producing lower highs.

Monthly Positions

expiration Dec. 17

DDS 49.68 50 2.18
GDX 56.88 56 2.70
LVS 43.61 44 2.02
RIMM 16.86 17.50 1.24

Weekly Positions
expiration Dec 1

BIDU 125.96 125 3.60

Other Base Positions

  • Long shares: CBM, PCCC, PKOH, TAST.
  • Long puts: K.


  • phase: 20-day price channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
  • trend: Price direction, green for higher highs and higher lows, red for lower highs and lower lows, yellow for sideways, and grey for neutral or ambiguous.
  • adx: Average directional index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 25 and up but below 40, magenta (light purple) for 20 and up but below 25, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, magenta for sunset on the horizon and brown for the earth.)
  • 200/50: The moving average cross, green for the 50-day ma above the 200, red for below and yellow for closely aligned.
  • 40/10: The moving average cross, green for the 10-day ma above the 40, red for below and yellow for closely aligned.

About my trading methods

Read a detailed explanation of my analysis method, including trading rules. These don't, at present, discuss my covered call strategy, which is under revision.


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

The trader’s greatest sin is inaction. Sleeper, awake! Seize the Nietzchean moment. Roll out of bed and trade.

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