The Greece-induced selloff in stocks on Monday reminded investors there is
still trouble lurking beneath the surface. While last week's tech-powered
rally improved the posture of the market and diminished bearish influences, it
didn't magically heal all the damage that has been done to both market
structure and investor psyche. Until the S&P 500 Index reclaims its 50-day
moving average and the intermediate trend shifts from down to up, traders should
continue to treat the current market as more of a hit-and-run environment. One
defensive trading tactic worth considering on a profitable stock position is the
sale of a covered call. Let's look at Intel (NASDAQ: INTC ) for an example.
The leadership of the semiconductor space during last week's rally was obvious
to anyone taking a sector-centric view of the markets. Intel was up over 12% by
week's end, surging back above its 50- and 200-day moving averages. Intel's
current overbought status coupled with the need for trader's to play defense
makes the sale of a covered call a logical play. Yet another dynamic increasing
the appeal of the covered call is the fact that implied volatility remains
somewhat elevated in INTC options. Of the current strike prices available in the
October cycle, the 22 strike call options trading around 80 cents offer the most
compelling risk/reward. Traders owning shares of INTC seeking to acquire some
downside protection and generate passive income should consider selling the Oct
22 call option. Source: MachTrader At the time of this writing, Tyler Craig had
no positions in INTC.
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