NaughtyPines
Long

OPTIONS TIP: COVERED CALL CANDIDATE TRADE SELECTION

AMEX:UNG   UNITED STATES NATURAL GAS FUND
11 months ago
Recently, I've posted a number of ideas of covered call setups, but which one or ones do I choose? I can naturally try to put all of them on, but for various reasons I may not want to do that ... . So how do I cull out the wheat             from the chaff? The UNG             , GPRO             , HUN, MW             , and JCP             ideas are the result of quite a bit of work already; out of these, are some better than the others?

Naturally, the selection choice is somewhat subjective, but I do think a couple of these have slightly more going for them than others.

Were I to be stranded on a dessert island and could only take 1 or 2 covered calls to the island with me, I'd probably go for UNG             and JCP             . Why? They are the most liquid underlyings of the bunch, which at least partially insures a fairer price for my setup than the other plays; bid/ask spreads are wider in the others, which potentially makes getting fills at the mid price more of a headache. UNG             and JCP             also offer weeklies, which offer a little bit of more flexibility in terms of rolling my short call (although this is not the kind of deal breaker it is when I'm doing short strangles, where I really want to have those weeklies to do short-term rolls with if I need to).

Were I to have to rank the plays, it would be a close call between GPRO             and HUN, after the UNG             and JCP             plays.

GPRO's not as liquid as UNG             and JCP             ; then again, its liquidity isn't terrible, it offers weeklies, and has quite a bit of volatility in it such that the premium received for the short call is fairly rich (in fact, its IV is higher than in UNG             , JCP             , or HUN), but a potential downside is that I'd have to devote about $1700 in buying power to the trade (100 GPRO             at 18.22; Feb 19th 19 short call) and that might of concern to smaller account holders.

HUN has better liquidity than GPRO             , but no weeklies, but it's also cheaper than GPRO             , so ties up less buying power.

MW             is the least liquid of the bunch and has no monthlies ... .

The other factor that you might want to look at is correlation. For example, I've already got a long natural gas             play on via CHK             . Do I really want to increase my exposure to natural gas?

All of these factors -- liquidity, availability of weeklies, current implied volatiity, correlation, buying power -- should be evaluated in considering which plays to go with ... .
11 months ago
Comment: I'm likely to attempt fills on all of these, with the exception of GPRO (already have a short strangle there). Some I may chase a bit with price to get a fill (JCP, UNG, HUN); others, eh, not so much (MW) ... .
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