Tractor Supply Co. Trucking Higher

We have the Super Committee, the International Monetary Fund and the Federal
Reserve. Yet, can one of these organizations, let alone all of them combined,
solve all the world's problems? The answer is probably no, but one can only
hope … and hope is a word that should never be used by a trader or investor.
You should always have a plan in place before executing a trade, and this
applies to covered calls as well. Here is one example to ponder. Tractor Supply
Co. (NASDAQ: TSCO ) looks like it could be a great choice for a covered call (or
a buy-write, if you dont already own the shares). The company operates over
1,000 farming equipment stores in over 40 states and plans on opening another 80
by the end of this year. The company looks good on paper and is expected to grow
earnings about 20% over the next four quarters. With this economy, that is quite
a feat. Since the beginning of October, TSCO has had a nice move up and has been
trading in a range between about $68 and $75 for the past month and a half. With
the current volatility and market conditions, it might be difficult for TSCO to
really break out to the upside. The $68 low-end of the range should act as a
nice area of support to keep the stock from declining. This covered-call idea is
counting on this stock to continue to trade in that range and be closer to the
$70 area at December expiration. Making the TSCO Covered Call Trade With TSCO
trading here at $68.85, you could buy 100 shares and sell the TSCO Dec 70 Calls
against them for a $1.95 credit. Here's a breakdown of this trade… Cost of
the stock : 100 X $68.85 = $6,885 debit Premium received : 100 X $1.95 = $195
credit Maximum profit : $310 that's $115 ($70 option strike – $68.85 stock
price X 100) from the stock and $195 from the premium received if TSCO finishes
at or above $70 @ December expiration. Breakeven : If TSCO finishes at $66.90
($68.85 – $1.95) @ December expiration. Maximum loss : $6,690, which occurs in
the unlikely event that TSCO goes to $0 @ December expiration. Managing the TSCO
Covered Call Trade The main objective for a covered call strategy is for the
stock to just rise up to the sold call's strike price, which in this case is
$70, at December expiration. The stock moves up the maximum amount without being
called away and the sold call expires worthless. Consider exiting the entire
trade (stock and short call) to avoid further losses if TSCO falls much below
support (about $68). Your No. 1 goal as a trader or investor is to preserve your
capital! Remember, he or she who fails to plan, plans to fail.