Monday, December 5, 2011

12/5 Covered Calls

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

My weekly options on BIDU were exercised. Which points to an interesting set of problems.

Problem One: What to do with BIDU’s slot? I could move back in with another weekly position -- SNDK comes to mind -- or I could leave it empty until the December options expire on the 17th. With the European summit on euro problems scheduled for Thursday, I think my smart move is to skip the Weeklys this week.

Problem Two, looming: What to do with January options, two weeks down the road?

The difficulty is that the S&P 500 (as measured by the SPY exchange-traded fund) has risen 9.4% in the six trading days after Nov. 25. That’s more than four times the average true range. That’s close to being a vertical take-off.

The move has brought the price to within $1 of the 20-day high of $128.02, and to within $3 of the ceiling of the slightly declining price channel that has been in effect since May 2. The price is within $3 of the previous highest high of $129.42, marked on Oct. 27.

So without a strong breakout to the upside, nearly all the risk on SPY is to the downside. If SPY starts to decline significantly, it will carry most of the market with it.

Traders who consider the recent sharp rise to be well motivated -- for example, a deep-seated faith in the healing power of the euro-zone -- will jump into bull positions, the cautiously bullish will go for covered calls, and euro-zone skeptics will stay in cash or start opening bear positions.

I’m a euro skeptic. I think the euro is structured like a Rube Goldberg device. With that in mind, I’ve opened bear positions the past week. The question facing me is what to do with my covered call money, which is the bulk of my holdings.

Another possibility is to sell iron condors on sideways-trading stocks.

Anyhow, I shall go slow entering this next cycle, on Newtonian grounds: What shoots up must plummet down.

Covered Calls

sym phase trend adx   200/50 40/10

Channels (weekly chart):

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 range that 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

Other Base Positions

  • Long shares: CBM, PCCC, PKOH, TAST.
  • Long puts: DDS, K, LEG, SPY, URBN, XLF.


  • 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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