I like covered call writes but only in an uptrend and I like covered put writes in a downtrend--but only during the consolidation phases after a large move. For now (and this is subject to change quickly) I think of PRMS as only a quick short play. First support is at $25, after that's its $20. $25 is so close that I really don't expect it to hold, but that's just going on my own intuition and the fact that the bollinger bands on price are tightly pinched right now. For the covered writer, I think the way to play PRMS is to short it right after it breaks $25 and then write covered puts for the $20 strike when it hits $20 even. The thing I dislike about covered writes is after you sell the time value, you are pretty much stuck in the stock position until options expiration. I can do greater volume and have much greater control and flexibility just flipping stocks without the options complicating things.
In your position, having written covered calls, and I'm going to assume they are for the $25 strike price, you need PRMS to stay, I'd say in the $20 to $25 range and rebound to $25 after options expiration. Your risk is in PRMS breaking below the important $20 support level, which would force you to roll down (buy back the 25s real cheap and write the 15s or 17.50s). The covered calls will cover a lot of the losses on the stock but not all of them. Covered puts on a short would simply get you out of the position with a profit if it went and stayed below $20 for any length of time. I think for those willing to take additional risk of options, the best play would be to buy the $25 puts right when PRMS breaks below $25, assuming the puts are fairly priced. Right now, the implied volatility is very high as evidenced by the tight bands making the puts expensive for the buyer and lucrative to the writer--You can collect a lot of time premium here. |
