Yong-Long Lai

Looking at the stock screen NVDA came up again with one of the highest covered calls premium, GE and a few others were pretty high too, that said I decided to go with NVDA since this stock is on steroids! Firstly, NVDA is trading in “blue sky” territory, ie. its never been over $40 before in its life, from the chart it looks like a breakout. There a few point of support line at just below $38 from the previous top from Mid December 2006. I was in this trade last month and it’s been good to me so I’ll stick for it another 32 days and see how it goes.

Reason:
Same as last month, NVDA is a profitable company following the fundamental rules, profits rising, revenue rising, good quick ratio, good return on equity etc. Its trading relatively close to the support lines ($38) and will only require a 2 months of renting shares to get well below the ’safe’ zone (ie. below the last support levels).

The Trade (18th June 2007)
Shares/Contract = 100
Expiry: 20th July 2007
Buy 500 NVDA @ $39.91 ($19,955)
Sell 5 NVDA 40 Calls @ $1.76 ($880)

Net Cost/Breakeven Point: $38.15
Premium: 4.4% ($1.76/$40)

Found out today Etrade does not let you write covered calls on margined stocks. How not good is that!