Selling Lead call option - 7.8% yield a month

[BREND]

Today is option expiration date for May07 contract, so its time to make some money for Jun07 contract.

Today Lead is trading at $2025/$2037. Inventory has been rising lately, so this should put a cap on the lead price. I perceived that lead price will not hit $2300 by 6th June 07.

Sell 2 lots of Lead call options @ strike $2300
Premium is USD14 x 25 x 2= USD700
Margin required: USD4500 x 2 = USD9000
Yield: 7.8% in 1 month's time

http://basemetal-trading.blogspot.com/2007/05/sell-lead-call-option.html

 

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Re: Selling Lead call option; 7.8% yield a month

Hi Brend

What type of protection do you use should lead decide to move sharply higher? do you buy the calls back, buy a strike higher, calendar spread ?

Selling naked calls can have a great win/loss ratio but all it takes is 1 trade to go t1ts up and your back to square one or a loss overall.

 

[BREND]

Re: Selling Lead call option; 7.8% yield a month

Hi Brend

What type of protection do you use should lead decide to move sharply higher? do you buy the calls back, buy a strike higher, calendar spread ?

Selling naked calls can have a great win/loss ratio but all it takes is 1 trade to go t1ts up and your back to square one or a loss overall.

Before I sell this Lead call option at strike $2300, I will ask myself 2 questions:

1) what would be the level that I'll interested to short lead?
2)what is the level that I think price will not reach by 6th Jun (which is the expiration of the option)?

Looking at the past behaviour of this metal, it had moved up $264 in 1 month (max). Yesterday lead is trading at $2015, so $2015 + $264 = $2279. So anything above $2279 looks safe to me, answering the point 2 above.

Then I ask myself, will I be comfortable to short lead at $2300? My answer is yes, inventory has been rising from 31078mt (in Mar07) to 43025mt today, hence this should put some downward pressure to the lead price (answering point no 1).

Of course after all these analysis, I still can be wrong (trading is not riskless right?). Then I may have to make a decision to cover my short position when my call options get exercised OR to hold on to my short position at $2300.

 

[BREND]

Today Lead is trading at $1990 / $2025, my sold options are still safe.