This morning I BTC 2 AA Jul08 37.50 Puts and STO 3 AA Oct08 35 Puts for a net deposit of $460.26 in an IRA account.  My basis for AA if assigned would now be 31.16 with the stock currently trading at 34.29.

Notice that I BTC 2 contracts and STO 3 contracts at a lower strike price.  I’ve lowered my strike price by 2.50 and my new basis if assigned by almost 3.00 per share.  At the same time, I increased my potential liability by $3000.  I think this provides me some additional flexibility (cushion) if I need to roll the stock out again, get assigned the stock and sell covered calls on it or sell the stock if assigned.  By the way, if I am assigned these 3 AA contracts I would own 500 AA in this IRA account.  I also have previously sold and have outstanding 4 AA Oct08 40 Puts in my taxable account with a basis of 35.96 if assigned.  I’ll be watching these with the idea of maybe rolling them out sometime next week after options expire this Friday.

My current thought is that if I am assigned these AA shares I will probably hold them and sell Covered Calls while collecting the dividend.  This fits my general investment goals.  Unless there is a tremendous price drop I do not intend to sell any new Puts on AA unless these current Puts expire worthless.

This morning I BTC 1 TIE May08 17.50 Covered Calls and STO 1 TIE Dec08 22.50 Covered Call for a deposit of $42.51 in my taxable account.

I don’t normally like to sell Covered Calls so far out and for such a small premium but I wanted to roll up enough to provide some additional room for the stock to continue moving up.  The 22.50 strike price may not be enough but by December I should be able to roll it out and maybe up again.

The market is moving so fast in some areas that I can’t seem to keep up with it.  After April 2008 expiration I sold Covered Calls on several stocks at strike prices that I thought would allow them to expire worthless.  I was expecting the market to continue moving essentially sideways.  TIE is one example that did not behave as expected causing me to roll out and up.  Yesterday it was AA, MNST and NYX.  Again today I see that NYX has already moved ahead of my new strike price.  I have the same situation with DIVX but have not dealt with it yet.   In this case I need to call the broker (E*Trade) because for some reason (they gave me a reason but it sounded lame) they will not allow on-line trades on DIVX options.  With the exception of AA the other stocks I felt compelled to take action because my basis is below the strike price.  I am never happy just getting out of a stock with a loss when I can attempt to “fix” it with options.

This morning I BTC 2 AA May08 37.50 Covered Calls and STO 2 AA Jul08 40 Covered Calls for a net deposit of $151.01 in an IRA account.

This is the kind of roll out and up that I really like.  I originally was put these AA shares at 37.50.  My basis is now $29.25 for these shares.  Selling Covered Calls at a price above my purchase price is where I start to make money over and above my option premiums.  With any luck I will be able to roll AA out or, even better, these calls will expire worthless in July and I can sell calls again at 40 or higher.