[jim2000]

I have a question for the options experts here.

Say I have 1500 RAD and am down about 1K. Current pps $4.01.

Would it be a reasonable play to write covered calls on this position for the Nov07 contract at 5.0 strike?

If so, does that mean I can't sell those shares until after expiration?

What I'm trying to do here is salvage a bad trade using option strategies. I've abandoned many losing positions and now I'd rather be proactive in trying to turn around this trade as opposed to just selling at a loss and moving on. If I can collect some premiums and in a few months the stock is still down, at least I can sell at a smaller loss than I would have if I had done nothing.

If there is a different, better play, I'm all ears.

Thanks.

[aiki14]

Originally Posted by jim2000 »

I have a question for the options experts here.

Say I have 1500 RAD and am down about 1K. Current pps $4.01.

Would it be a reasonable play to write covered calls on this position for the Nov07 contract at 5.0 strike?

If so, does that mean I can't sell those shares until after expiration?

What I'm trying to do here is salvage a bad trade using option strategies. I've abandoned many losing positions and now I'd rather be proactive in trying to turn around this trade as opposed to just selling at a loss and moving on. If I can collect some premiums and in a few months the stock is still down, at least I can sell at a smaller loss than I would have if I had done nothing.

If there is a different, better play, I'm all ears.

Thanks.

If your broker prohibits you from selling naked options (Level III) you will not be permitted to sell your shares until the calls are exercised or expire.
I don't follow RAD but the stock would have to rise 25% in a month for it to hit your strike. If the odds of this are small the risk reward is positive but the calls aren't gonna net you much, move out a couple months and you'll get more in premiums but take on more risk.
This may not be possible for you due to the price of transaction charges (contract fees) but you can buy downside protection (put's) and fund them partially with your covered calls, I haven't looked at the prices on RAD options but you likely could get the downside protection at 5% from here using this method, meaning you could lose no more than 5% if it tanks, and if it runs up you get your 1k back plus another $.34 of upside. That adds a pretty good risk reward piece to the strategy. Note that if the stock goes over $5 neither of the options strategies above will outperform holding the stock alonem, if the stock stays here or moves up but below $5 your scenario is best, and if it tanks my strategy will outperform.
What are you thinking the stock will do?

[jim2000]

Thanks Aiki,

The Jan08 calls are .15 so that would be $225 for 15 contracts, minus broker fees. To sell at the 5.0 strike would be $531 profit, minus broker fees. Total of $756 profit, minus broker fees.

I am more than willing to sell at $5.0/share.

I personally think the stock will go to between $5.0-$6.0/share in the next couple of months. But, you never know.

If it hits $5.0 and the shares are assigned, I'm happy. If it goes to $4.80 at expiry, I keep the premium and either sell the shares for a small profit, or sell covered calls again, depending on the situation at the time. If it tanks, I employ your put strategy and limit my losses.

My main goal with this trade right now is to play around with this a little bit to learn the different options strategies and get a little options experience. Also, to salvage this trade.

[aiki14]

Sounds good Jim, hope it works out for you.

[jim2000]

Aiki,

I sent you a PM with another question.