NOV covered calls action update.

This weekend December options expire.

Almost one month ago we purchased NOV shares for $24.75 and sold Dec $25 calls against this position for $3.50

The stock closed Thursday at $22.86

In case of a significant rally Friday, it is possible that it may close over $25 thus get called away. We'd rather use the shares to generate additional covered call profits.

We cannot know of course at this time what prices we'll realize for our transactions during Friday's session, so for illustration consider that the December calls we'd sold and now intend to buy back are showing the last ask price as $0.15 and the February $22.50 calls we intend to subsequently sell are last bid at $4.20

We wish to buy back our December calls, thus ending our obligation to sell shares should the stock close over $25 tomorrow.

We wish to take advantage of the current pricing for February calls, especially to avoid the price falling further if the market slides again Friday. The myth of markets rallying into options expiration is just that - a myth. This hasn't happened for some months now, nor by our counting does it happen any more often than coincidence would suggest, so we shall not count on it.

Upon closing the December calls position we will then have reduced our effective cost for the shares to roughly $21.40 ($24.75 for the shares - $3.50 for the calls sold + $0.15 for calls bought back).

We will then sell the February $22.50 calls against our shares thus reducing our cost further.

If the shares are called away, we will realize a 31% profit on our newly-adjusted cost base in under 3 months of owning the stock. In any market conditions, a 31% profit in 3 months is excellent ergo we'd be well-pleased.

If the stock falls significantly further and shares are not called away come February expiry, we'll take new action at that time while feeling lucky we took this action now.

In the event that markets rally quite significantly and NOV shares rocket far higher, we won't mind since we have other long holdings that will enjoy appreciation in a general market rally so for this position we gladly renew our hedging despite the limitation it places on our potential profit. Such is prudence.


It's nice to hear some companies are hiring during the downturn.


Watch CBS Videos Online


We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the stocks we do, or mentioning them in this blog. If we hold existing positions we divulge the fact, otherwise we generally buy and sell as diarized here. This blog itself is merely a diarizing of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

To be notified when this blog is updated :
Please e-mail christianguinness@hotmail.com with "Subscribe to blog" in the subject line or click here to do so automatically if your computer is configured accordingly. We have never shared our mailing list with anyone, nor will we, nor have we ever sent anything other than update notices for this blog to our mailing list. We only send update notifications when a trade idea is diarized, not if an update only contains general market commentary.