The following example shows how to profit by using covered call + roll up (call spread). The following case generated 15% return in 3 weeks, while FFIV’s price changed from 95.67 to 94.69, only about $1. If you bought and held FFIV, you’d lost $1.
My trades of FFIV calls elegantly illustrate the beauty.
I own 11100 shares of FFIV. I am short 77 contracts of FFIV at strike of 100 (Exp July 2011).
3.23.11: sold 111 contracts FFIV Mar 25 at 95 @ 1.3. FFIV closing price: $95.67.
3.25: rolled up 111 contracts FFIV from 3/25 to 4/1, took in $1.78/share (bought back 3/25 @1.39 and sold 4/1 @ 3.17) due to expiry.
3.31: FFIV remains above 95, so I rolled it again. This time I paid $6.8/sh to buy back and then sold @8.1 for 4/16 strike 95. Took in $1.3/sh.
4.15: FFIV is bouncing around 95. I rolled it up to 4/21: paid $0.6 to buy back and sold $5 for strike 95 at 4/21 expiry. FFIV closing price: $94.69.
In summary, for the 3 weeks ending 4/16, the net profit is $4.38/share. Profits/my investment (manta requirement)=15%
Take home message: FFIV is trading in a range now. There is not much net change in FFIV prices, but using this strategy, we successfully booked 15% profits.
Trade of the day: 2 more days left for the weekly expiring this Thursday. I placed the following trade, taking advantage of the decline of LVS.
Long 200 contracts of LVS @42, short 43, for cost: $0.85. Potential profit $0.15, or a total of $3000, in 2 days.
LVS is in a bullish trend. It’s share prices have never been below 43 since March 2011. Even with the big decline of the overall markets yesterday, LVS went up. Today’s weakness is likely a breather after yesterday’s advance.