Covered Call Picks (RIMM,ARNA,VRTX,LULU,LNG)
What's a Covered Call?
The covered call is a strategy where an investor writes a call option contract (sells an option) while at the same time owning an equivalent number of shares of the underlying stock.If this stock is purchased simultaneously with writing the call contract, the strategy is commonly referred to as a buy-write.
While you may have heard that trading options is risky business, covered calls are actually a very conservative strategy, and most brokerages even allow retirement IRA accounts to write covered calls.
|RIMM||Research In Motion Ltd||7.39||8||1.5||20.20%||Aug-12|
|ARNA||Arena Pharmaceuticals Inc||9.98||10||2||19.50%||Aug-12|
|VRTX||Vertex Pharmaceuticals Inc||55.9||57.5||7.2||12.90%||Aug-12|
|LULU||lululemon Athletica Inc||59.6||60||6.3||10.50%||Aug-12|
|LNG||Cheniere Energy Inc||14.7||15||1.4||9.20%||Aug-12|
Research In Motion Ltd (RIMM) is currently trading at $7.49. Its 52 week range is between $7.34 and $33.54.
Arena Pharmaceuticals Inc (ARNA) is currently trading at $9.95. Its 52 week range is between $1.23 and $13.5.
Vertex Pharmaceuticals Inc (VRTX) is currently trading at $55.56. Its 52 week range is between $26.5 and $66.1.
lululemon Athletica Inc (LULU) is currently trading at $58.1. Its 52 week range is $41.7 and $81.09.
Cheniere Energy Inc (LNG) is currently trading at $14.8. Its 52 week range is between $3.17 and $18.92.
MASTERY Bottom line:
There are pros and cons to writing covered calls. In theory, this strategy will out perform outright stock ownership if the stock price declines, remains the same, or slightly increases in price. The principal disadvantage of this strategy, on the other hand, is that profit potential can be limited if the underlying stock price advances sharply.
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