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TheStreet Open House

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). 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).

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