Generate Income On IBD’s Stock Of The Day ELF Stock Using Covered Call Strategy | IBD

TL;DR

Generate income on ELF stock using the covered call strategy, offering a predetermined exit price and potential yield for investors.

Transcript

foreign hey Traders for today's trade we're looking at a covered call strategy on a recent IBD stock of the day elf elf Rose 85 over the last year while the S P 500 suffered serious declines taking a look on Market Smith shares had a nice jump in Friday's market clearing a 5702 buy point from a five-week flat base volume was well above average supp... Read More

Key Insights

• ❓ ELF stock outperformed the S&P 500 during a year of declines.
• 🫓 The stock broke out from a five-week flat base and joined IBD's Leaderboard.
• 🫥 ELF's relative strength line is at highs, indicating strong bullish momentum.
• 👻 The covered call strategy allows investors to generate income and define an exit price.
• 🌓 ELF has demonstrated consecutive quarters of accelerated earnings growth.
• 📔 The covered call trade offers a premium of $2.95 per contract on ELF stock.
• 💄 No dividends are currently paid by ELF, making covered call writing an appealing option.

Questions & Answers

Q: What is a covered call strategy?

A covered call strategy involves purchasing shares of a stock and selling call options on that stock to collect income. It allows investors to define a predetermined exit price and generate additional yield.

Q: How does the covered call strategy work with ELF stock?

To set up a covered call on ELF, investors would first buy shares of ELF stock and then become the seller of call options on that stock. By selling the call options, they collect income to offset their cost basis. If the stock price exceeds the agreed-upon strike price at expiration, the investor must sell their shares at that price.

Q: What is the benefit of using the covered call strategy on ELF?

ELF does not currently pay a dividend, so generating income through covered call writing is attractive. Selling a call option for around $2.95 per contract provides a small buffer on the downside and yields potential premium of $295 in just one and a half months.

Q: What is the total risk involved in the covered call trade on ELF?

The total capital at risk in the trade would be $5,510, the amount the trade would lose if ELF went to zero. However, it is recommended to close out the position before incurring such significant losses.

Summary & Key Takeaways

• ELF stock experienced strong growth, surpassing the S&P 500's declines.

• The stock broke out from a five-week flat base and joined IBD's Leaderboard.

• With consecutive quarters of accelerated earnings growth, ELF presents an opportunity for investors to generate income using the covered call strategy.