As I wrote in my article “My DMD covered call and fiscal cliff? my covered call against DMD may go against me. I expected that to happen if the fiscal cliff happens. Well, fiscal cliff didn’t happen (yet, and maybe won’t happen at all), nevertheless DMD is not going in my favor.
Since the covered call I opened originally became already worthless I decided to buy it back and sell a new covered call farther in time at the same strike. This trade will bring another $40 into my account and builds a cushion for further repair process if the stock remains where it is or fall even lower.
So here are the trade adjustment details:
I bought back my old February 2013 $10 strike covered call at 0.05 and paid $5 and then I sold a new May 2013 $10 call at 0.45 and received $45.
If the stock manage to raise up above 10 strike the trade will look like this:
| New Expiration date: | 5/18/2013 |
| New Strike: | $10 |
| Buy Back Old Call: | $0.05 |
| Buy Back Commission: | $0.02 |
| DMD May 18 2013 10.0 Call | $0.45 |
| New Commission: | $8.78 |
| Total New Expense: | $862.53 |
| New Expected Option Assignment: | $1000.00 |
| Option Assignment Fee: | $19.00 |
| Expected Proceeds: | $981.00 |
| New Expected Net Gain: | $118.47 |
| New Expected ROI: | 13.74% |
If the stock won’t go up and stays at current levels or falls lower and the above sold option becomes worthless again I may buy it back and sell another covered call and this time with a lower strike. That would ensure the stock will get called away with a profit. I will however post it as it happens.
Here is the original covered call trade on DMD.
Marvin, I am trying to keep my head cool and calm. I have never been good in trade adjustments at I am a bit afraid I won’t be able to handle the trade and get out with flying colors. Well, will see later how it will go on.
Great strategy to preserve your initial trade and let your analysis play out!