Sunday, February 5, 2012

A Look At Covered Calls - Groundhog Day

This is an update of my A Look at Covered Calls - The Naked Truth project. A hypothetical portfolio of systematic covered call writing (AKA synthetic naked put writing).


Groundhog Day - Well that's what it seems like, closing out short calls pre-expiry for a loss and rolling up to gather up a little more extrinsic value. The adjustments are increasing our profit from the covered call strategy, but not enough to keep pace with the rise in the stock.

Essentially we are taking it where the sun don't shine on the intrinsic value of the short options as our stocks relentlessly rise.

I didn't have time to update live again, but on Friday I recorded a couple of adjustments.

GS continues to rise in essentially a straight line since inception of the strategy, so once again to tweak the collection of extrinsic vale, I rolled from the Feb $110 calls to the Feb $115. Once again, we lose on the intrinsic value, but collect the bulk of extrinsic ahead of time and writing closer to the money for some more extrinsic.

Here's the state of play:

NOV presented the same opportunity so we rolled from the Feb $75 to the Feb $82.5

No action necessary on FCX