This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Don't Sell Apple, Intel, Chipotle and IBM On Earnings; Do This Instead

I did not end up writing the call. Because my cost basis is right around $27, I did not want to risk losing my shares and taking a premature loss on the stock position.

Plus, even if I was up on-paper (when you factor in dividend and covered call income, I actually am), I am not ready to part with my INTC shares just yet. The last thing I wanted was for the stock to run and for my shares to get called away at $26 apiece.

Of course, I could always buy the call back to close the position, however two caveats come with that strategy.

First, if the stock runs, I might end up having to buy the call back for more than I paid for it to salvage my shares. Second, you play chicken with the possibility that you will not be able to buy the call back. Your counterparty might have exercised his or her option to buy INTC at $26 before you had the chance. That's always possible.

As such, it's important to assess the circumstances of your position before your implement a covered call strategy. While I have written and will continue to write calls against my INTC lot, there are times when I prefer not to pull the trigger. And, even if the time is right, you need to carefully decide which strike price you will go with on your call.

For example, imagine you are long IBM (IBM - Get Report). You expect the company to buck the trend and blow the doors off of earnings after the bell today. You think it will retest its 52-week high of $210 in short order. And you absolutely do not want to see your shares get called away.

In this case, you're better off waiting for the stock to run and IBM calls to increase in value alongside it. At strikes in the $200s, you can pick the one that suits your sentiment best.

Generally, if I have considerable on-paper gains on a stock, I rarely worry about it getting called away. In fact, you can use covered calls to get paid to sell stock. Consider Chipotle Mexican Grill (CMG - Get Report).

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.46 0.00%
CMG $664.97 0.00%
IBM $161.94 0.00%
INTC $33.25 0.00%
FB $78.97 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs