DNR AND ESW—Writing Covered Calls
Yes, we like doing AMD and RIG, but here are a few others for your consideration.
DNR and ESV. Their one year and five year charts are almost identical.
DNR is at $2.20 and ESV is around $4.50. The both have okay premiums. We're looking at the strike price just below and just above the stock price. I want to make a point. When a stock is about halfway between two strike prices, it's tough to decide.
An example DNR is going for $2.20. The Feb $2 calls are 35¢ x 45¢. The $2.50s are 15¢ x 25¢. If we use the current bid—and do not put is a higher limit order—we take in an okay amount.
Let's run the numbers. 1,000 shares would cost $2,200, or $1,100 on margin—if your brokerage firm allows margin on this particular stock.
A. If we sell the $2 calls for 35¢, 20¢ is in-the-money. Yes, we take in $350, but we would only net $150 of that. In this case we may hope for a slight pull-back in the stock. If so, we could buy back the option and try to resell it on the next run-up or for the next month.
REMEMBER: I do not sell an option to actually sell the stock.
B. If we sell the $2.50 calls we would take in less money, $150, but that money is ours to keep. If the stock moves up we just may be able to sell it for $300 above where we bought it.
And again, if we don't want to actually sell the stock, we can buy-back then (later) and resell again —maybe out further.
The same is true with ESV. These premiums are not huge, but $150 on $2,000 or even $1,000 is not bad.
I like these trades for a bit more safety. Imagine $1,000 making $100 to $150 a month.