Hi Ray,
Hey easy, easy, take a few deep breaths! Well, I wipped out the spreadsheet and plug in your numbers and they all jive! Good math! Your net cost basis after the cover (and bad fill) is $8.82 (-$1.19) which means you need to get under the current $7 5/8 stock price! Now, follow some logic below.
Apex has been doing some improvements to the company from the news I read and the price has been somewhat higher recently. In fact, they made a recent new high. So, we have a little profit taking. You have worthwhile stock at pretty low price range. At a current PE of 24 x .57 EPS FY97 = $13.68 is about the fair value of the stock. The last earnings report had a 106% earnings surprise of .11 which shows the company is getting into gear with the profits. It's worth keeping the stock for a some premiums.
Why would you want to take a loss on this stock at this time? I looked at the charts and it looks like the stock should bounce off the 50-day moving average to test the recent high. It's not going to make it the first time! So, sit back and stick it to your call buyers for the next two months!
Don't sell another call until the price goes up somewhat. Say $1.00. ($8 5/8) I know you might think I'm loco but the volume for the past few days has been tapering off almost to nothing. Meaning, the selling is just about over. You did your Dipity Do (covered) at a bargain price. Now, you will sell the four calls when the price goes up $1.00 and you will go out to at least the April 7 1/2 going right now for around 1 1/4. That should go up to 1 3/4 when the stock moves up to 8 5/8. Heres the math:
1.75*100=175 * 4 = $700.00 - 27.5= $675.5/400 = $1.68 and your net cost basis would drop to $8.72-$1.68 = $7.04. If you wish to enhance your profit and lower your net cost basis faster, buy more shares of the stock! Otherwise, you can take the $675 dollars and buy calls with the money and protect your profits if the stock takes off again! Or, if the stock drops again down the road, you can do the same thing again! In the meantime, you are using someone else's money to do it!
If you owned the stock outright (with out covered calls) you would not be sitting on a lost! A lost is not a lost unless you need to pull the money out! STOCKS NEVER GO UP ALL THE TIME! You are doing everthing correctly!
In summary, selling the April 7.5 will move you to the plus column by $198.05 and if you are called out without doing ANYTHING ELSE IN THE MEANTIME you would earn $148.05 (4.94%) less commissions. April is a long time away! I would bet the you can still come out ahead! I would use the call money to make more money!
Good Example! Thanks, that was fun......:-) |
