Covered Call Premium!

Thought you might find this interesting.

So after sifting through stocks using a strict criteria (see at the bottom – this in addition to a piece of software search with stringent criteria) I came across this stock which makes solar electric modules – FSLR – First Solar. The stock is ripe for gains based on fundamental and technical analysis, but just as importantly, it has great premiums for call writes.

In one transaction I bought 100 shares and sold a call (a covered call write) which expires in Jun for $1,214 for monthly cash flow of $607.12 or a yearly cash on cash return of 60%.

Scenarios:

1. Price rises above $134.98, stock is called away, I receive $1,369 in gains plus the premium of $1,214 I get to keep for a total of $2,567 (after commissions of approx. $16) over 2 months – COC return of 21% for two months, or 126% for the year if repeated. I go on to evaluate the market (is this still a good strategy) and look for new opportunities.
2. Stock hovers at its current price of $121.29, call expires worthless, I keep premium of $1,214 and continue to sell options against it if the stock and market are still ripe for this strategy.
3. Market crashes, stock drops to $114.00, my break-even after commissions. At this point an alert would be sent to my phone and e-mail. I would evaluate the stock running the same fundamental analysis and look at the market as a whole. If both are crap I buy back the call to close it out, (this is factored in) and sell the stock. If this happens, no money is lost.
4. Market crashes severely, stock plummets by more than 20%, past my breakeven before I have a shot at selling. In this case I will have a stop loss order in place … which will automatically sell in this scenario … say set at $105 to limit loss. Additionally, a put order can be put in place which guarantees the level you can sell at which prevents catastrophic losses. (Enron) So for this guy, I can buy a June put that locks in $100 for approximately $220 … this eats away at profit but … it is insurance. The stop loss is free but if the stock gaps down (opens lower than it closed) you can have more loss. Either way, this is a ¼ case scenario after stringent criteria is applied and a stop loss will be in place to prevent catastrophic loss.

Of course this is a bull market strategy. You need to learn how to buy puts with insurance (limit upside risk) and sell a stock short, again with upside limit insurance, both for down markets.

First Solar Inc FSLR June 18th								COC - 2 Months
4/6/2010	B		100		121.29	12137.7	-12137.7	0.100037898
4/6/2010	S	1	June	115	12.15	1214.23	-10923.47	0.600227391
								Mo CF
								607.115

Scorecard Details

Criteria	FSLR Value	Meets Criteria?	Ranking
Divd. Yield: Greater than or Equal to 3.00%	--	No	N/A
P/E (TTM Intraday): Less than or Equal to 20	16.1	Yes	64%
P/E (This Year - Est.): Less than or Equal to 20	20.0	Yes	37%
PEG Ratio: Less than or Equal to 2	0.7	Yes	90%
Price/Book Ratio: Less than or Equal to 1	3.9	No	16%
Price/Cash Flow Ratio: Greater than or Equal to 4	13.4	Yes	29%
Price/Sales Ratio: Less than or Equal to 0.8	5.0	No	14%
EPS Growth (TTM vs. Prior TTM): Greater than or Equal to 1.00%	78.25%	Yes	79%
EPS Growth: 5-Yr Hist.: Greater than or Equal to 10.00%	142.39%	Yes	100%
EPS Gwth. (Proj. Next Yr vs. This Yr): Greater than or Equal to 5.00%	21.28%	Yes	50%
EPS Growth (Proj. 5 Yr): Greater than or Equal to 5.00%	26.90%	Yes	93%
Ret. on Assets (TTM): Greater than or Equal to 1.60%	21.99%	Yes	98%
Current Ratio: Greater than or Equal to 1	3.4	Yes	77%
Debt to Capital: Less than or Equal to 40.00%	6.19%	Yes	65%
P/E (Last Year - Actual): Less than or Equal to 20	16.2	Yes	62%
P/E (Next Year - Est.): Less than or Equal to 20	16.5	Yes	37%
EPS Growth: 3-Yr Hist.: Greater than or Equal to 2.00%	400.66%	Yes	100%
Inventory Turnover (Last Qtr.): Greater than or Equal to 5	8.8	Yes	65%
Net Inc. Per Employee: Greater than or Equal to $100	$136,200	Yes	95%
% of Inst. Ownership (Last vs. Prior Qtr.): Less than or Equal to 90.00%	-1.31%	Yes	19%
Quick Ratio: Greater than or Equal to 0.5	2.6893	Yes	78%
Net Insider Shares Bought: Greater than or Equal to 1	11,000	Yes	70%
% Chg. 52 Wk Low: Less than or Equal to 50.00%	22.89%	Yes	12%