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