The bulls on Wall Street were firmly in control of the stock market for the past few weeks, though the huge drop in oil is turning the market bearish.
With Congress on the cusp of approving an additional $450 billion stimulus package to fund small business loans, support hospitals and increase testing, the economy could see more support in the future.
For the time being, we want to generate income on our long stock position in Ball Corporation (NYSE:BLL) by selling a covered call.
What to Expect from BLL’s Earnings
BLL had been moving up in lockstep with the overall market as it approaches its earnings announcement on May 7, before market open. Though the stock has pulled back slightly, we expect it to have a favorable earnings announcement.
Most of BLL’s products — aluminum packaging for beverages, personal care products and other household products — were still in high demand at the end of the first quarter, even as consumers were sheltering at home during the coronavirus pandemic. When people stay at home, they need things to drink and products to practice self-care.
BLL may not be hit as hard in the first quarter, but there are more problems to watch for going forward.
However, with a covered call position, we don’t need BLL to continue rising right away. We can collect income while we wait for the stock to recover.
Looking to March’s Highs
We originally purchase shares of BLL at $77.50, which is around the stock’s March resistance level. Because we don’t want to risk being called out at a lower price, $77.50 is the perfect strike price for our trade.
Daily Chart of Ball Corporation (BLL) — Chart Source: TradingView
We think an expiration that comes after the company’s earnings announcement would be best. A post-earnings expiration provides a much larger premium due to the increased implied volatility levels associated with the option.
If you, like us, are holding shares of BLL, selling a covered call can help you earn extra income while you wait for the market to recover. As we often remind our readers, don’t obligate yourself in this trade for too much time. Pick an expiration that offers a good premium but doesn’t keep your shares tied up for too long.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.