(Primary) US Steel Covered Call (X) 9/24/2010

Posted by Admin & filed under .

UPDATE 2010-10-08

Our order to sell an October covered call on US Steel (X) has not filled, so we are lowering our standing order to sell the call from $0.75 to $0.50. US Steel (X) October options have 8 days until expiration and selling the OTM 48 call again lowers the price basis.

Strategic mindset: Neutral to Bullish

The equities rally has followed through after pushing through significant resistance. The stock market has been trading within a wide channel from 1130 to 1040 for most of the past year. In addition the volatility has held below the critical 28 level on a weekly basis and is significantly lower than the 50% retracement level at 34 indicating a downward trend and supportive of stocks.

Target:US Steel (X), trading Wednesday $42.81

Commit Criteria:

A solid base has been built at $42 with support below at $38. A move above resistance at $50 signals a breakout but selling October calls against our current stock position has a low probability of being taken away. The high relative US Steel volatility and time decay works in our favor for selling an OTM option. The October option series has 22 days until expiration to lower the stock cost basis once again.

Tactic:OTM Covered Call

Tactical Employment:

  • Sell October 48 Call @ $.75 against EXISTING X SHARES
  • Net credit of $.75
  • BE and Risk = Lowers Basis to $45.19
  • Reward = $2.81 if called away, 6% gain on the trade

Mid-course guidance:

Profit exit:

Let OTM option be assigned to offset shares for $2.81, 6% gain

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

Exit:

Close trade by selling X September 48 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 September Covered Call sale at $.75 lowered the basis to $45.94. This Trade Alert tactic again lowers the purchase cost.