Medium term
/
Buy
Trade view / 26 January 2017 at 15:27 GMT

Income Strategy: Covered call on General Electric — #SaxoStrats

Product Manager, Options Trader, Educator
Denmark
Instrument: GE:xnys
Price target: 31
Market price: 30.37
k Background

Last Friday, conglomerate General Electric posted mixed Q4 results. Revenue missed already reduced estimates and the stock got punished. For investors looking for recovery and better times ahead, the current price of $30.37 could present a good opportunity. The shares also pay a quarterly dividend of $0.24. 

GE could be an opportunity
GE
 Source: Saxo Bank

In order to allow for the market to come back and for the shares to recover, we will extend to the 17 March 17 expiration month. Since we expect the shares to get a lift over that timeframe, we will sell slightly out-of-the-money, e.g. a 31 strike price. 

At the time of writing, the above contracts could be sold for $0.32 which reduces our cost basis in the stock down to $30.05. This will be our breakeven point, as well. 

Finally we will have a number of opportunity to roll these calls out and therefore bring additional premium. 

In case of an early assignment, the buyer of the calls will forgo their premium which will play to our benefit. We will provide a few updates.

GE
 Source Dynamic Trend

Management and risk description

We are risking our initiation price of $30.05.

Parameters

Underlying Price: $30.35

Status: Opening trade

Trade: Buy + Covered Call GE 100 17 MAR 17 31 CALL at $30.05*

Risk: $30.05 per 100 shares (slight reduction in risk due to the premium received)

Maximum gain at expiration or when called out: 3%

*indicative price

Entry:
today as two orders (buy to open shares/sell to open call)

Stop:
no stop

Target: 30-50 days

Time horizon:
mid-term

— Edited by Martin O'Rourke

Non-independent investment research disclaimer applies. Read more
A compiled overview of Trade Views provided on TradingFloor.com is found here
2y
vsquare007 vsquare007
Instead of buying stocks won't CFD would be better option ?
2y
Georgio Stoev Georgio Stoev
Can't deliver the underlying, if assigned, so you'd be selling naked calls in theory.

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