GOOG Covered Call Option Strategy

Duane, mentor at San Jose Options, discusses the covered call on Google around earnings.

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GOOG Covered Call Option Strategy

Video Transcript

This could’ve been a good thing to use. If you look at price action like this, the slow grinding up, you know, it’s a really kind of nice situation to be anywhere. The cover call strategy could really be productive for you. Again, I really emphasize looking at the premium you’re bringing in versus the trade opt if the market really wants to explode up. It’s going to be to serve you much better to hold on to the shares in those cases.

Of course we never know when that’s going to happen but by using the charts here, you might have a decent feel for, “Okay, we’re in this confirmed, upward, biased direction of the price here. I can position a covered call strategy in the right time frame, out of the money far enough where I’m bringing in the premium that I’m content with and willing to risk my shares if we are to approach that point.” Now, let’s just say and again, it’s always easy to look at the charts in the rearview mirror.

Here we start to peak out and maybe at this point in time you start to see that, “You know what? We’re in a situation here where we could have a pretty good pull back. Also, I have earnings coming up. So, I’m at the top end of the range, I have earnings coming up in a week or so. This is maybe a time where I don’t want to be exposed.” Because remember the example I showed where if in fact you get that strong pull back, this modest amount of the premium you brought in is not going to offset the move that you’re going to suffer. And we could see right here that’s exactly what happened. If in fact you’re in a covered call position, your shares lost a lot of value; the premium that you brought in probably wasn’t enough to come close to offsetting that. So, what really looked like a nice strategy was implemented at the wrong time.