Covered Call Picks (DMND,IMAX,OVTI,CTRP,MHS)

Make Fat Stacks with Covered Calls

Here are today's Covered Call Picks for Monday 02-20-2012.

What's a Covered Call?

The covered call is a strategy where an investor writes a call option contract (sells an option) while at the same time owning an equivalent number of shares of the underlying stock.If this stock is purchased simultaneously with writing the call contract, the strategy is commonly referred to as a buy-write.

While you may have heard that trading options is risky business, covered calls are actually a very conservative strategy, and most brokerages even allow retirement IRA accounts to write covered calls.

Ticker Company Price Strike Bid Return Expiration Date
DMND  Diamond Foods Inc  24.5 25 1.7 6.90% Mar-12
IMAX  IMAX Corp  23.8 24 1.6 6.50% Mar-12
OVTI  Omnivision Technologies Inc  16.8 17 1 6.00% Mar-12
CTRP  Ctrip.com International Ltd  24.7 25 1.5 5.90% Mar-12
MHS  Medco Health Solutions Inc  64 65 3.8 5.90% Mar-12

Diamond Foods Inc (DMND) is currently trading at $24.5. Its 52 week range is between $21.41 and $96.13.

IMAX Corp (IMAX) is currently trading at $23.75. Its 52 week range is between $12.57 and $38.

Omnivision Technologies Inc (OVTI) is currently trading at $16.75. Its 52 week range is between $10.15 and $37.05.

Ctrip.com International Ltd (CTRP) is currently trading at $24.69. Its 52 week range is $22.02 and $50.57.

Medco Health Solutions Inc (MHS) is currently trading at $64.01. Its 52 week range is between $44.6 and $66.38.

MASTERY Bottom Line (Ninja Style)MASTERY Bottom line:

There are pros and cons to writing covered calls. In theory, this strategy will out perform outright stock ownership if the stock price declines, remains the same, or slightly increases in price. The principal disadvantage of this strategy, on the other hand, is that profit potential can be limited if the underlying stock price advances sharply.