Friday, January 19, 2007

Crocs Covered Calls Called Certainly

About a month ago I sold January $45 covered calls for $1.40 on half of my Crocs position. Today Crocs closed at $47.95, two days ago it was pushing $52. And there in lies the rub of covered calls. The upside potential is limited by the strike price you pick and the premium you accept. As you can see I clearly left some dollars on the table with this trade… and that happens. It still goes down in the books as a positive outcome. Since only half of my position is being called away it is a little easier to shrug my shoulders at the dollars left on the table. If I had had January $45s on the whole lot of them then tonight I would be more… reflective on my trading decisions. For the shares that I still own the plan is to hold. I still look for good expansion out of Crocs and more money to be made on CROX.

In the end: CROX shares were bought on November 20th and 21st, for an average price of $44.26. December $45 covered calls were sold on November 21st for $1.60. Since they were not called January $45 covered calls were sold on December 21st for $1.40 and were called January 19th.

The math: $45.00 - $44.26 = .74 per share
.74 + $1.60 (Dec) + $1.40 (Jan) = $3.74
$3.74 / $44.26 = 8.45% for right at two months of holding time. (Does not take into account commissions and margin interest paid.)

You can see how it all started (here).

That’s it for today. Here’s to trades with positive outcomes and to keeping an eye on your EveryDay Money.

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