Building a GE covered call

First, let’s update the GE position.

Today, our P/L YTD is at $695. Daily Theta (time decay) is $1.35. We have one Oct 24 call for sale at 70 cents, currently priced at 66 cents. I almost always enter my order price at somewhat better than the market and wait for that extra few dollars. Here is the thought process:

I own 500 shares of GE and right now I have sold 3 Oct 24 calls against those shares. I want to maximize the daily time decay and I can do that by selling as many calls as possible. GE is up over 1% today so it’s a very good day to be selling calls. If you take a look at the GE options, it is clear that there are many choices. GE offers weekly options over the next 4 weeks. A new series expires every week. It’s best to stay away from the weekly options and leave those to the professional traders. The algorithms that calculate the weekly option prices make it nearly impossible to actually profit from small-time trading in those contracts.

I skipped the weeklies, and opened up the regular monthly options expiring 31 days from today. I already have a position in the Oct 24’s so it makes sense to look there first. They are in the money, so that offers some extra protection should the price of GE decline. The trade-off is that an ITM position will cap any potential profits in return for that protection – all the way down to around $23.80. That’s a good trade, and selling the 25’s is another good choice. Either one is acceptable.

Looking at the 24’s, they are priced at .66 bid to .67 ask. I simply added a few cents to take my price to 70 cents and placed the order. There is no real math or science involved. I may get my price if I wait, I may not. My thinking is that, as a frequent trader, I can increase my income by always trying to get a few extra dollars from every trade. It usually works well.

If I sell one at .70, I will immediately place an order to sell another at 75 cents. If I don’t get anything done by late afternoon, at some point I may lower the price.

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