Wednesday, January 10, 2007

Finding the next covered calls

Man, Crocs management presented at the IRC Conference this morning at 8:10 am West Coast time. (Where’s the coffee?) For math people that’s about 11:10 am East Coast time and if you look at today’s chart that is about the time CROX took off running. In short management had nice things to say about margins and also announced licensing extensions with the NFL and the NHL. CROX finished the day with almost twice the 3 month average volume and a price of $47.68 (4.04% up).

With CROX up on good volume there is a really good chance that my January 45s covered calls will be called away at next week’s end. If that does happen then two things will come about: 1) Half of my CROX position goes away. 2) Pretty much all of my margin loan goes away. Not sure how excited I am about #1 but #2 let’s me go hunting for another stock. Since I will be on margin I don’t want anything too crazy. Ideally I will be able to find a stock that I can write some February calls against (take in a little money to off set the interest). 2.5% - 3.5% call premium is what I normally shoot for (again nothing too crazy) on a stock that I won’t mind sitting on if it doesn’t get called away come February. If things go well the stock moves up some, it gets called away in February and I make about 7-9% for the effort. All the while my CROX and SNDK continue to climb. (Well that’s the plan anyway.)

For the last few days Garmin (GRMN) has caught my eye. It has taken a few downgrades (Merrill Lynch and DA Davidson). The stock once over $56 a few days ago has backtracked to $52.30 today. The February 55s don’t look to bad. And if they get called away it is right in that 7-9% range for the month. I don’t know yet. First I have to get to next Friday’s option expiration and see what happens to my CROX.

If you have an idea on a good covered call play for next month drop me a comment or an e-mail. Thanks.

That’s it for today. Here’s to always finding somewhere to go next and to keeping an eye on your EveryDay Money.

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