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TRW Covered Call Trade

|Includes: TRW Automotive Holdings Corp. (TRW)

 TRW makes a wide variety of auto parts, especially auto safety equipment.  The company has modest expected earnings growth at 8 percent.  Last quarter they had a large earnings surprise of 58 percent.  The company announced that several executives and shareholders were selling 7.5 million shares in a public stock offering.  TRW's price took a steep dip on the news, but bounced very nicely off its 50-day MA and is starting to climb again.  I like the durability the stock has shown after that announcement, so I bought it today at $36.42 and sold the October $35 calls for $2.49 leaving me with a cost basis of $33.93 and a profit of $1.42 per share if called out, which is a profit of 4.18 % with a downside hedge of 6.8%  

The stock meets all my technical criteria:

1.  TRW is in a nice uptrend.  Since hitting a low of $26.20 in July, the stock has had a healthy rise and has stayed above its 200-day MA throughout 2010.

2.  The price just moved above the 20 day MA and bounced of the 50-day MA which is now at $34.98.  My cost basis is $1 below this first support level.  It is also below the recent low of $34.41 which was the low point of the most recent dip.

3.  Trading volume has been rising on up market days since the big September 9 dip, confirming the price uptrend.

4.  Open interest is over my 2500 minimum at 4700 for the $35 October call strike.

5.  Earning come out November 10, so we have plenty of room before the October 15 expiration cycle. 

Disclosure: Long TRW