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$$ Buying Stock Too Early: Covered Call Strategy for the Impatient $XLF

I’m looking at this chart and think there’s a pretty good chance the stock will drop to $15 within 2-4 months.

It also sorta looks like an inverse Head-and-Shoulders (bullish) pattern? but I’m not entirely sure.

I want to buy the stock today! What if I buy it and the price drops? Based on this dividend capture strategy I came up with a solution that will work for me.

Here’s how it would look at today’s prices: I buy 200 shares at $16.65, sell 2x $15 June 2011 calls at $2.10.

  • If the stock drops as I anticipate, I’ll buy the call back for less. For obvious reasons, can’t predict the profit at this point;
  • If it doesn’t drop, and gets called away, I still make a profit of 1.8% net.

The plan is to hold XLF and write calls. Rinse-repeat.

So, in summary – if you can’t wait, buy early, then sell a deep in the money call, but not too deep so that you lose money if the stock is called away.

Calculation done using this covered calls calculator.