You're receiving this email because you're an opt-in subscriber to CallWriter's free MONEY newsLETTER.
To make sure you receive future newsletter issues, please add mnl@callwriter.com to your Safe Senders List or Address Book.

SuperPut and Covered Call: Two Completed Trades Analyzed By John Brasher, CallWriter Publisher
I put on a couple of trades on January 3rd, one a covered call and one a SuperPut covered call. I think you will find the results interesting, since the returns were good (one was terrific) even though the market tanked after these trades were placed.

Target (TGT)
Covered Call Trade

On January 3, I bought TGT for $40.47 and sold the Jan 50 Call for $1.60, so the call sold was just slightly out of the money. If I had been called out, the return would have been $2.13, a return of 4.4% for a 16-day trade, since January 19th was expiration day. Normed to a 30-day month, that 4.4% would be 8.25% monthly return. But that is not what happened.

Right before January expiration, I rolled out to the Feb-08 call, meaning that I bought back the JAN calls and sold the FEB calls with the same strike price. The reason I rolled out was to pick up more premium. TGT closed at $50.10 on January 18th (expiration Friday), so I would have been called out. By rolling out to the February 50 Calls instead of allowing myself to be assigned in January, I picked up another $2.00 in premium.

The trade's duration was 44 days and the profit was $4.13, a return of 8.6% on our original $47.87 trade debit. Divide the 8.6% return by the 44 days we were in the trade and multiply by 30, and we get a 5.86% monthly return. Lisa Brasher actually picked this trade, and my only contribution was to suggest rolling out to February.

This trade could have been rolled again and again, so long as the next month's premium was still acceptable. On the afternoon of February 15th (expiration Friday), the Feb-08 TGTBJ 50 Calls could have been bought back for $2.35 and the Mar-08 TGTCJ 50 Calls sold for $4.70. This would have brought in another $2.35 of net premium, boosting return from $4.13 to $6.48. When you read articles about covered calls, they often leave you with the impression that if your short calls are in the money, you can only helplessly watch as your stock is called away. But by simply rolling the calls out, you increase return. Why? The reason is that you ALWAYS get more for selling the same strike call next month than it costs to buy back this month's call.

By the way, Target still looks like a fine trade to me, and we may write it again. Compare a chart of Target to the market chart below and see how much stronger it has been than the market.

Bed, Bath & Beyond (BBBY)
SuperPut Covered Call Trade

On January 3rd, I bought BBBY for $27.26 and sold the Jan 27.5 Calls for $1.10, so the calls sold were just slightly out of the money. At the same time, I paid $3.10 for the Aug-08 27.5 Put. Here is the effect of the trade upon open:

So I was not at risk for more than $1.76 from a price movement in either direction, since my long put and short call were both the 27.50 strike. At my online SuperPut webinar on March 8th (see below), I will be covering at length the nuances of balancing risk and return and how to choose which strike call to write and which strike put to buy.

When BBBY dipped the very next day, I bought back the January calls for $0.15 (which I had sold for 1.10), which netted a $0.95 trade credit. My intention was to write the 27.50 calls again when the stock perked up above $27. This process of buying back calls on a dip and writing them again when the stock snaps back is known as trading the calls, and it can really add to returns. But the stock kept hugging the $26 resistance level.

When the stock did move above $27 on January 18th, I decided that BBBY might make a run up (it did) and I decided not to write another call but just hold the stock. I sold the stock at $31.04, missing the high of $32.84. However, the stock had twice failed at around $32, in November and December, and I was not inclined to get greedy. No law says the stock must get back to the resistance level, after all.

But I did not sell the put with the stock. After all, the put was good through August and it made sense to hold it on the chance that BBBY would fall back to the $27.50 price range at some point. So I sold the put on February 19th for $2.95 (paid $3.10) when the stock was $28.03.

This was a total return for 47 days of $4.58, or 15.6%, a 9.95% monthly return. Note that most of the return came from selling the stock, and that I recouped almost all of the put's original cost when I sold it in February.

There were other ways to approach the BBBY SuperPut trade and other ways it could have been closed. I will demonstrate those during the live SuperPut webinar.

Market Environment

The market was downtrending when both the TGT and BBBY trades were placed, as the chart below illustrates. In fact, the market sold off the first three weeks of January, and the increasing volume on the sell-off indicates how real it was. BBBY considerably outperformed the market over the trade's duration, and TGT blew the market out of the water:

Check out a chart for TGT and BBBY since the year's beginning and you will see what I mean. Though some believe that covered calls only work in a rising market, it is not so.

Both are good companies and both should continue to do well even if the economy slows, especially TGT. Both were down considerably from higher price levels, which provided some confidence that the market had already taken the starch out of their shorts. Great companies that already have taken a beating usually work wonderfully for covered call writing. BBBY was a SuperPut but would have worked fine as a covered call, as well.

I have a couple of trades where the stock is down that are being managed, AMZN and SLB, which I will cover in a subsequent issue. They - particularly AMZN - have not shown the same strength as TGT, for example. If they had been done as SuperPuts I could already have closed both at a decent profit or made a huge profit by selling the long puts and still own a couple of great stocks. I am picking up a bit of premium here and there opportunistically. The likelihood of taking a loss is quite small, so I am unconcerned.

SuperPut Webinar Coming Up:
Sat., March 8th

This is an important CallWriter event:

In a riveting, 1-day session, John will cover the SuperPut Covered Call strategy from soup to nuts. Though essentially a simple trade, the SuperPut offers some nuances that are not immediately apparent. And it is difficult to describe it all in a how-to web page. This webinar will lay it down for you, though.

You can learn to do the SuperPut on your own, but my webinar will really take your trades to the next level. If you are serious about making real dough consistently while limiting your risk to a few percent of your money in the trade, the SuperPut webinar is a must. And it is reasonably priced.

Seats are limited and there are not many left. We don't have another SuperPut webinar scheduled, so if you want it, don't delay.  All the details here...

Trades we will cover:

As noted, I'll cover the above BBBY trade in detail. I'll explain different ways I could have constructed the trade and different ways the position could have been traded. Another writer might have made less, or more, than I did, and we will look at some alternatives.

I also have an interesting SuperPut trade on in Borders Books (BGP). I have reduced my cost basis to within pennies of the long 10 Put. It has been rather resistant to trading the calls. I should do very well with it, but the trade illustrates yet another approach, an if-you-can't-beat-'em-join-'em approach, to the SuperPut. I'll show you my thought process for selecting the trade, why I built it the way that I did.

Want some trades? We will also look at some trades on the SuperPut lists. You should leave the Webinar with some very cool trades you can run, and you'll know how to enter and manage them, too. Why you should be there

Event info:

The early bird discount (save $200) is only good for a few more days. Seats are are limited and there are only a few spots left. Don't miss this event!

CallWriter not only shows you the fattest trades, we teach you how to analyze them and pick the ones with the highest combination of return and safety. We also show you how to manage your trades after you run them for maximum profitability. What CallWriter's really about is making real money trading, not just being educators! This newsletter article is only a survey of some commonly used covered call strategies. We hope you've enjoyed our newsletter! Please tell your friends about us!

Good luck and good investing!

This email was sent to an opt-in subscriber at: [email]

This newsletter was sent by:
LogiCapital Corporation, d/b/a CallWriter.com
725 NE 6th Street, Gainesville, Florida 32601

Copyright © 2008 John D. Brasher Jr. All Rights Reserved. Used by Permission.