UYG - Covered Calls & Puts

Analyse the following two example trades with current prices on paper & see if you get the picture on how covered calls work & how a selling of a naked out works:

Trade 1 (Covered call example) :

Buy UYG at $5.3193
Next - Sell to Open Call UUFBE (Feb, strike price 5) at $0.90
Return = 11.xx% for 1.5 months

Stock gets sold at 5 if at expiration it closes at or above 5. You keep the stock if it closes below 5 & the cost basis now is 4.10 going forward.

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Trade 2: (Selling naked PUT)

Sell to Open Put UUFOD (March Strike price 4 bucks) for .45

Return = 10% for 2 months

Committment will be that if it closes below 4, you have to buy the stock at 4 bucks, but you already got .45 for it in advance. You will be assigned the stock, with a cost basis in that case of 3.55 going forward.
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UYG Chart & Movements on Dec 31

Here we analyze UYG using the charts.

In past 1 day, UYG went up quite a bit.

So we need to analyze that if one did not take any position, what should be the next move. Or, if positions were taken, then should they be unloaded.

As a day trading candidate, with 5K shares, a 20 cent move accounts for 1K before commisions. For the long term position takers (based on previous posting) with covered calls, UYG has already given a nice % return & such movements can be ignored through expiration because they are in positive territory with a low cost basis from the spreadsheet.

Let us analyze the chart that is attached here. UYG is approaching a cluster of past resitance indicating that there will be sellers who will take a profit & there may be a pullback in this upward movement.

Also, the S&P futures dropped alot in overnight trading after the so called rally of S&P on last day of trading.

So it may be best to wait & watch to see if it pulls back to the levels of 5.7 to 5.9, which should be the case base on various Fibonacci retracements plotted or further wait till it even pulls back down to 5.4.

On the upside, if it moves upward & breaks through 6.4, then it may March towards 6.8 or 6.9

The fact that it moved up more than 10% in just 1 week, & the charts indicate resitances, the probability is that there will be a pullback.

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