I’m testing this strategy, and using (BGU: N/A N/A) as my guinea pig.

BGU — 100 shares, bought @ $23.46
BGU APR $25 CALL — sold @ $1.60
BGU APR $30 CALL — bought @ $0.38

In short, here’s what this gives you:
if you expect the stock to move up but want to lock in some profits, sell an OTM call, and buy a cheaper one even further OTM to capture the potential upside move in the underlying in case yours gets called out.

I’m curious to see how it works out versus simply holding the stock. The experiment should conclude by April options expiration, and I’ll post an update.

Pros:

  • Lets stocks work for you by generating option income
  • Significantly better upside potential than standard buy-write
  • Should enhance overall returns under most market conditions

Cons:

  • Lower standstill returns than traditional buy-write
  • Additional commissions
  • Lower income generation means less protection against prolonged downtrend by the stock (i.e., higher cost basis)

I sold my first ever option! 1 contract, covered call on SSO.

Jan’09 with strike $23. Got $4.10 for it, which means I net $212.05 after commission.

Questrade options commissions are $9.95 + $1 per contract.

If SSO is above $23 in January, my shares will be called out. If not – I keep them. I want them to get called out, but won’t worry either way.

That was partly my intention in buying SSO – to try options. Just 100 shares, not expensive, but somewhat liquid.