(Primary) US Steel Covered Call (X) 11/23/2011

Posted by Admin & filed under .

Update: December 17

Called out of position for $7.50, 17% profit.

This Tactic of selling a Covered Call ONLY applies those who OWN the US Steel shares from the August 5th trade. This is intended to lower the basis price once again on the long stock position.  FILLED DEC 1st at $.81, cost basis now $45.00

Strategic mindset: Neutral to Bullish

Strong September support at 10,000 for the Dow built a base for the two month run to new 52 week highs.  The pullback over the past two weeks has held the psychological 11,000 breakout area from early this year.  The sharp decline in volatility during this profit taking can be a very bullish sign for higher prices in the near future.  A weakening dollar is supportive for resource stocks and exports in general to increase demand.

Target:US Steel (X), closed Monday at $47.46

Commit Criteria:

A solid base built at  $42 was temporarily violated on the downside for a few sessions in November before rebounding.  The stock has been in a channel between $50 and $38 for the last five months setting up for a big breakout.  The high relative volatility combined with less than only 25 days until the December option expiration make for a high probability covered call to lower the cost basis once again.  The $52.5 strike is a good deal higher and over 10% out of the money for a sale on US Steel share rally.   

Tactic:OTM Covered Call

Tactical Employment:

  • Sell December 52.5 Call @ $.81 against EXISTING X SHARES
  • Net credit of $.81
  • BE and Risk = Lowers Basis to $45.00
  • Reward = $7.50 if called away, 17% gain on the trade

Mid-course guidance:

Profit exit:

Let OTM option be assigned to offset shares for $7.50, 17% gain

Threats to success: General stock market break down or Dollar Rally.


Close entire trade by selling X December 52.5 covered call. Sell the shares and buy back the option sold to unwind whole position.

Bought X shares originally August 5th at $47.42 and sold the Aug 50 call at $.73 to lower actual cost to $46.69. The October Covered Call sale was never filled so the basis remained the same.  The November series 48 covered call lowered the basis to $45.81. This Dec Trade Alert tactic again lowers the purchase cost.

Portfolio Allocation:

We allocate roughly $5,000 per trade to the model portfolio in determining the number of contracts traded. Consequently we will be trading 100 shares and 1 option contract based on this trade alert. You should determine how much allocation is appropriate for your account.