Wednesday, December 27th, 2017

Covered Calls on Low Priced Stocks?

I need some advice on a particular trading strategy involving stocks covered Requests barato.Con a population very low price as BRLC, (1. 05 shares), the interest premium is the means. 10 -. 30 the last two weeks. Without taking into account the costs of recruitment, it is a return of 10-15% in the cost of the shares whenever the options expiran.He done this a couple of times because the price is so low that was my point input, and I’ve been looking at other people to use the same estrategia.Otros that the risk of the population goes to 0, provided that this raises no red flags? I’ve been doing more as an intellectual exercise to gain more experience with the options, but I have made about $ 10 – $ 15 for every $ 100 invested so ahora.La majority of these stocks are not really penny stocks, but stocks are well outside their 52-week highs. Shares traded in the range of 10-30 at one point, but now feels very bajo.BRLC, LVLT, SPC, KRY, OPWV

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4 Responses to “Covered Calls on Low Priced Stocks?”
  1. frnchfries2000 says:

    I didn’t realize you could write calls on such low priced stocks.

    It doesn’t raise a red flag to me. The volatility of these low priced guys is so huge that you’d expect to be paid well for a call. That 1.05 stock could go to 2 or 3 dollars. My $50 stock that I write calls on won’t go to 100 or 150.

  2. A nobody says:

    this is one of those flukes that are out there, a real cash cow..

    Just have to watch the stock so there are no spikes, but you do have a nice gap
    The open interest on the 2.50 is pretty big, but the 5’s also look attractive

    Enjoy the cash cow

  3. Common Sense says:

    Way too much risk for a “conservative” play like a covered call. Risk/reward would be way out of wack. All you’d need is one or two of these stocks to drop overnight by 30%. And you know they do!

  4. zman492 says:

    < <>>

    However, while a stock is trading below $3.00 per share no new option months will be added, so the number of times you might be able to repeat this process is limited. For example, with BRLC the only expirations left are Jun ’08, Jan ’09 and Jan ’10.

    < <>>

    The stock does not have to go to zero for you to lose money. If you had initiated A BRLC covered call using the June expiry at the end of the trading session today (3/26/08) you would have paid $1.02 for the stock and received $0.10 for the option, making your net cost $0.92 per share. If the stock is below $0.92 at the June expiry you will have lost money.


    One big disadvantage of trading low priced options is that the bid-ask spread is a huge percentage of the premium. In the case of the June BRLC $2.50 calls the bid is $0.10 and the ask is $0.15. So, if you sell the option for $0.10 then want to close the position it will cost you another $0.05, or 50% of the maximum profit you can ever make by selling the option, to close the position. Of course you can decide you will commit to keeping the position open until assignment or expiration, but if you do you are also making the commitment to keep the stock no matter how much it falls during that time.

    Another way to think about the bid-ask spread is that with a bid of $0.10 and an ask of $0.15, the “fair value” for the option is almost certainly somewhere in between. For simplicity, let’s say fair falue is $0.125. That means you are getting receiving less than 80% of fair value when you sell the option. Selling $1.00 bills for $0.80 each is not a recommended way to make a profit.

    I am not saying that for any given low-priced stock you will not make a profit, but any time a stock price drops dramaticly there is a reason. When the price drops to the $1.00 range it is usually quite possible the company will not survive. If you want to use this as a strategy you need to be better than the average investor evaluating the probability the company will recover.

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