I could aim to hold on to things an wait for a better net credit, but I’m still a bit nervous about the volatility for AIG,. So I figure capturing my max profit and being out earlier is wonderful!

Having done a bit more reading over the weekend, I’m wondering how I would have done if I had made a collar play instead of a covered call. A collar is simply adding the purchase of an OTM put (i.e. strike below the underlying’s trading price) to a covered call. I don’t have the option quotes from the time of my original covered call trade, but using current data, I might have BTO AIG @ 42.44, STO IKG JQ (Oct $43) for $3.22, and BTO IKG VU (Oct $42) for $3.35. That would expose me to a max loss of of $65 plus commissions, or a max gain of $35 minus commissions. Not a great profit potential on that combo, and I’d say fairly high risk of losing the max too, but perhaps there are ways to play it a little better given more research into collars? I need to modify my spreadsheets to account for adding the put so that I can play with numbers and get a better understanding of collars.

That being said, today I was thinking that if I could lock in most of my gains and get out early, I could be pretty happy with that. So I entered a day order to sell out of the covered call for a net credit of $36.87. That would net me just over 90% of the profit expected if my covered call was assigned at expiration. As a point of reference, the current net credit mid-point quote is $35.56, which would get me just over 20% of the original profit. So there’s still quite a gap between my order and the current market ($1.21) however, I’ve seen this move more than $1 in a day last week, so perhaps I could get lucky and hit. If not, I’ll take another look tomorrow morning.