If you have owned that stock for six to 24 months or longer, you've likely done quite well with a buy-and-hold strategy. You're not necessarily bearish -- you actually remain bullish -- but you would not lose any sleep over taking money off of the table. That's where a covered call play ahead of earnings comes in.
At this juncture, you just need to ask yourself If CMG runs on earnings this Thursday, how much money am I willing to potentially leave on the table?
As of Tuesday's close, you could write the CMG August $400 call and collect $13.80 in premium. That means $1,380 in your pocket no matter what. That $13.80 also means that you do not leave money on the table, effectively, until CMG trades higher than $413.80. Even at that point, you have not actually lost anything until the counterparty exercises his or her option to buy CMG for $400 a share.
You can use covered calls in a variety of ways, tweaking strike prices and expiration months to suit your sentiment and gain/loss situation. No matter how you go about it, broadly speaking, investors are can be better off making use of covered calls. If you don't, you really leave money -- as close as the market comes to giving you "free" money -- on the table.Follow @RoccoPendola At the time of publication, the author was long INTC. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV