tell me if its a good trade?
Dear Mark,

I need advice on a trade I would like to do. I am wondering if writing a covered call on CROX trading around $32-33/share.
I am thinking of selling Mar.30 call selling between $5.50-6/contract. I would be buying the stock and selling the call
at the same time. Please give me your advice asap.

manju chexal

Hello Manju,

First, let me apologize for the delayed response.  I saw your urgent note but somehow forgot about to reply.

But, I also cannot give specific investment advice.  It's not that I am afraid, but I am not a licensed advisor and I cannot afford to get in trouble with the SEC.

I'm sorrry to see the stock closed so much higher, but this is what I would have said had I replied earlier:
This trade offers the potential for a very good return on your investment.  But, as you know this is a volatile stock and there is considerable risk in the trade.  If you believe that CROX will not tumble and if you are willing to take the chance, the reward potential is very good.  But, it's entirely up to you to decide if the risk is worth going after that reward.

As an aside, if your broker allows, you can save a bit on commissions by selling the March 30 put instead.  the naked put and covered call are exactly equivalent positions.

The trade I would recommend - from a safety point of view - is to take less risk and seek less reward: Instead of selling naked puts, consider selling a put spread instead.  For example, sell the March 30 put and buy an equal number of puts with a lower strike, probably the March 25 put.

Once again, I apologize.  I always reply to email as quickly as I can get to it, but somehow this one slipped through the cracks.


Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options