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Author: twill06 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1076  
Subject: good time for Covered call? Date: 12/2/2011 10:38 AM
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I am considering selling 100 shares of LOWES which were assigned to me some time ago at a cost of $22.22 per share.

Would now be a good time to create a Covered Call?
If so, can someone assist me with determining what would be a good strike price and expiration date for setting up this option?

Thank you,
Dorsett97
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Author: RGAnthony Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1063 of 1076
Subject: Re: good time for Covered call? Date: 12/4/2011 11:31 PM
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Dorsett,

If you are looking to sell your 100 shares ASAP then look at the Dec 11 calls that expire in 12 days.

LOW closed on Friday at $24.31 and using the bid price for the analyst. (you may get more by spliting the bid/ask). Below assumes you get called on the one contract.

The 22 strike will give you $.05/share.
The 23 strike will give you $.15/share.
The 24 strike will give you $.32/share.
The 25 strike will give you $.25/share.

So, the 24 looks about the best. Now, commissions will take some of your profit. So, 32 cent x 100 shares - $10 commission gives you about $22 extra from selling the shares outright.

I am not sure the covered call is worth it. However it is your call. If the stock goes below the $24 strike you still have the stock. You can sell another cover call for the next month but the price will be dropping.

Good luck and cheers,
Gary

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Author: BuildMWell Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1066 of 1076
Subject: Re: good time for Covered call? Date: 2/14/2012 2:15 PM
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"I am considering selling 100 shares of LOWES which were assigned to me some time ago at a cost of $22.22 per share.

Would now be a good time to create a Covered Call?" - Dorsett97

Here is how I view Lowes:

http://invest.kleinnet.com/bmw1/stats25/LOW.html

Here we see 25 years of share data that shows the price today is at historical lows. That, to me, is not a good time to sell covered calls. Instead, I might even consider buying calls "at the money"...likely LEAP calls out two years to let Mr. Market come to his senses with this great business. What I like even more is selling "in the money" Puts in hopes the shares will be put to me, but then I will likely never really own the shares and just get to keep the cash.

For instance, today the $25JAN14 LEAP Puts are bringing $3.65 to $3.75/share. That looks like a real bargain to me. If the shares are Put to me, my cost is $21.25 to $21.35/share. What is more likely is I will just make $3.65 for every share I agree to take at the strike price.

Do you really want to sell your shares? If so, I would sell the $28MAR12 @ $0.50 or the $29MAR12 @ $0.20. You can pick up a few bucks and maybe the price will stay below the strike price. The $28APR12 is $0.75 and the $29APR12 is $0.40. If your intent is to just juice your cash position, I think I would opt for the $29MAR and re-evaluate after the expiration date as to whether to sell the $29APR12's then. If you keep chasing the price up, you may well have the shares and keep the option premiums too.

However, with the share price at 25-year lows, I think selling options on LOW is risky business. You never know when Mr. Market will wake up to the cheap price and start the inevitable price rise. That is, if you believe in the statistics.

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