Today, 2/21/12, I bought 200 additional shares of ZQK at a net $4.68 per share to average down my ZQK basis.  I then sold 6 ZQK Aug12 $5 Covered Calls for a net deposit of $227.43 in my taxable account.  My basis for these ZQK shares is now $7.18.  This transaction represents a simple return of about 5.01% and an annualized return of about 10.22% on my prior basis if held to expiration.

I don’t have much to say about ZQK.  I have been disappointed with it and will exit it at some point by allowing them to be called away.  A big reason for that is that ZQK does not pay a dividend and as you know by now I have a strong bias toward dividend paying stocks.  The other reason is that the options are not very profitable.  On the other hand, as my basis is decreased the return on the basis tends to increase.  As with other stocks that I own I may find that just continuing to sell Covered Calls may begin to be worthwhile.

I chose the $5 strike price because it has proven to be a good one for me in the past even though ZQK has moved above $5 now and then this past year.  Even though that strike price is below my average basis, I stand to earn a profit on the 200 shares I purchased today.  I will consider buying some additional shares to average down further if my current Calls expire worthless in August.

There continues to be fewer analysts following ZQK than there had been.  For instance, S&P does not have a current price target on it.  MarketEdge currently has a price opinion of $3.46 and a Long recommendation.  The 7 Yahoo analysts currently have a 12-month price target of $4.99 and an opinion of 1.9 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.  If they are right I should be able to continue to sell the $5 strikes or roll out my existing Calls at the same strike for awhile, each time reducing my basis by a few cents.