On my Yahoo Forum a conversation was underway on how to rescue a speculative stock Hecla Mining Co which trades under the symbol HL from being exercised away. The investor bought 1000 shares of stock and sold covered calls which are now in the money leaving the stock open to exercise but they want to retain ownership and enjoy further profits if the stock continues to rise.
Below is the question from the investor. I have added some details to provide full information on this trade. The investor has 1000 shares of a stock and has written covered calls against all shares. The stock has risen above the call strike sold and the investor would like to hold onto those shares. Let’s review the question.
A neighbor’s daughter asked me for help on HL and I think I came up with one. However, I can’t remember the last time I tried this and would be grateful for a critique. She owns 1000 shares of HL and sold 10 CC’s at the 2.50 strike set to expire this week (June 19). HL is currently at $ 2.95. Looking at HL it appears she will be exercised. My suggestion is to roll the 10 June 2.50 calls out to 10 July 2.50 and buy 10 puts for July at 2.50. This collar is much less expensive than exercise and salvage the stock ownership. Her account is $8400 in total and she sold 10 calls on HL for 2.50 call strike that expire 19 June. Bob.
The first thing to mention is that buying the July $2.50 put strike will not result in the investor not losing her shares.
When an investor wants to retain stock ownership and is selling covered calls for income only, they should never sell calls against all the stock held. For example, this investor has 1000 shares and sold covered calls on all the shares. Instead if this investor had covered just half of the shares she could have used the uncovered shares to assist is rescuing those that ended up in the money. At the very least, by not having all shares with covered calls, she would have participated in more upside and still have earned some income on the remaining shares which would be exercised.
This strategy article, is 1800 words in length and will require 5 pages if printed. It is available to members only.
FullyInformed USA Members can login through this link or they can sign in to the full USA members site here. Investors can join FullyInformed’s USA section or read about the benefits of being a member through this link.
FullyInformed Canada Members can login through this link of they can sign in to the full Canada members site here. Investors can join FullyInformed’s Canada section or read about the benefits of being a member through this link.
Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.
Stay FullyInformed- Subscribe For Updates