Search This Blog

Thursday, January 27, 2011

LLEN trade analysis

It is always good to look back at recent trades to see if Sell The Call can do better in future trades. Regularly, there are multiple reasons as to why a trade is a success or a failure. Today, Sell The Call is going to look at its most recent trade, a covered call with L & L Energy. Sell The Call overall took a loss on the trade. We are going to look a one specific area where Sell The Call can take note and watch to make sure it improves on its trading.

Sell the Call started the trade by finding that LLEN had a December call bid value of $0.55 to its $10.00 call while the stock was trading at $9.63 on November 22, 2010. Sell the Call entered into a covered call trade by buying 100 shares of the stock and selling 1 December 2010 $10.00 call.

The stock proceeded to move up to $12.00 before expiration. The call meanwhile lost all but $0.05 of its time value. Sell The Call made the decision to buy back the call (incurring more cost as the call had intrinsic value of $2.00) before expiration and sell the January 2011 $12.50 call for $1.15. In the process, Sell the Call failed to recognize that these actions increased the cost basis of the stock up to over $11.00 while not having the price support needed to make such a trade. More importantly, this caused the stop loss point for the trade to move up higher than the support levels for the stock indicated. The stock moved down from that point and easily hit the stop loss price. This caused Sell the Call to buy back the call and sell the stock for loss on the trade.

It is very important to know where the likely support levels are for a stock when making covered call trades. In this case, Sell the Call did not recognize that the change in cost basis put the stop loss price over the expected support of the stock. In future trades that present an opportunity to roll forward to the following months, Sell the Call needs to be aware of movements to both the cost basis and the stop loss price movement before going forward with the trade.

- Don't forget to Like our Sell The Call Facebook Page and follow our Sell The Call Twitter page!

- This information is not to be used as a recommendation to buy or sell. It is simply information and opinions. Before investing, please consult a financial professional. This blog takes no responsibility for any losses or gains that occur from trades using its material.

- The account does not fully divulge all information (the size of shares bought and calls sold) on open trades. This is for protection of the trade. When the trade on a particular stock ends, the account will give the size information out. Please feel free to ask questions and the account will answer them the best way possible can without endangering the trade. THE ACCOUNT WILL NOT MISLEAD READERS TO CREATE A GAIN ON ITS TRADES!

- If you have any info regarding call selling, be sure to comment or send an email. The goal of the blog is to collaborate so that we all can accumulate wealth with the help of selling calls. Please pass the blog address to others that might find some value from it.

No comments:

Post a Comment