Covered Call Play: Precision Drilling Corp. (PDC)

Oil driller Precision Drilling Corp. (PDC) has been rallying since October along with the oil services space (see OIH chart below) but it doesn’t come with the high price of the OIH or many of its competitors, making it a good candidate for an affordable covered call strategy. The stock has been steadily adding about $1 per month onto its price since October and is up almost 5% today on heavier than average volume.

For those of you wishing to add income to your regular or retirement accounts, the Feb 11 call is now trading at $0.20. With the stock priced at $10.44, this gives a return on investment (ROI) of 7.3% assigned or 2% unassigned. Going out one month further (which I wouldn’t do but some people prefer a longer time frame), the Mar 11 call is trading at $0.40 giving a 9.2% return assigned and a 2.8% return unassigned.

Remember that covering a stock limits your upside potential but it does offer you some downside protection (by the price of the call that you sold) should the stock lose value. There’s always a tradeoff in options!

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