Special Edition!  Afternoon Mailbag

Lots of good response from the Morning Mailbag so for today I’ll do a quick afternoon edition of our popular blog entry.

When you see low volume at 1:00 EST, does that mean anything as there is more volume to go through the exchange and the volume could be more at closing?  Paul in CO

Paul,  Volume tends to drop off around 12:00 noon EST each day and around 1:00 EST it should be at its lowest for most stocks and other products in the market.  This is due to many reasons, but one simple one.  Traders are at lunch.  Another thing to remember is that most London banks close at Noon EST time for the day so international buying slows down as well.  The volume will pick back up into the close.

Tim,

Do you think it is a good time to purchase SHW, or should the high exceed the previous high of 221.71 first? Thanks, Paul

Here’s a chart on SHW Paul to take a look at.  Good identification of a bullish trigger and bullish trend.  With it pressing the high point, it’s probably a wait and see as there’s not much time left in the day for a strong move.  Earnings on 10/23

Quick question please!

On a covered call, I know I put a stop loss on the underlying stock, but is there a stop for the call also? Or do I simply sell the call? I have tried to find the answer and have just gotten more confused. 😉

Thanks,

Vickie Oddino

Hi Vickie,

If you stop out of the underlying stock and leave the option out there, it will now become a naked option without protection.  So the better way to protect this trading strategy is with a stop on both the call and option at the same time.  You need to do some calculations to get the exact price though.  For example:

If your stock is worth $50

And your call is worth $2

The total Covered call is worth $48.

If you want a stop loss at $47 on the stock, you may need to use a risk graph to calculate what the value of the call will be when the stock goes to $47.  Then the order would look something like this:

1st as a sell stop limit – used to protect your trade:

2nd as a sell limit if you simply want to exit your entire covered call at current prices:

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