The Perfect Time to Sell a Covered Call on Adobe

It’s a great time to be an options seller. Implied volatility levels are rising, and option premiums are rising along with them. Plus, online options brokerages are eliminating options trading commissions.

No trading commissions means more of the income you generate by selling covered calls and put writes goes directly to your bottom line. If your broker hasn’t eliminated options premiums yet, or isn’t planning on doing so shortly, it may be time to do some comparison shopping for a new broker.

To celebrate the elimination of options trading commissions — and to generate some more instant income — we’re entering a new trade on Adobe (NASDAQ:ADBE).

We’ve been managing a long stock position in ADBE since our ADBE August 9th $302.50 Put Write expired in the money, and we’ve already successfully sold one covered call against the stock. Now, we’re ready to collect more income.

Tech is Struggling Thanks to Trade Issues

Like most tech stocks, ADBE’s share price has suffered as the trade war drags on.

The last time we recommended selling a covered call against this stock, the rest of the sector, as represented by the Technology Select Sector SPDR Fund (NYSEARCA:XLK), was caught in a tight consolidation range. As you can see in the chart below, technology stocks have dropped to a slightly lower level.

Daily Chart of Technology Select Sector SPDR Fund (XLK) — Chart Source: TradingView

The Trump administration recently announced a new trade blacklist containing over 20 Chinese organizations and companies as a response to the Chinese government’s human rights violations against Muslim populations in the Xinjiang region.

Many of these were tech companies, and the tech sector, which has already been so affected by trade issues, didn’t handle the news well. Traders may have been concerned about retaliation against American tech companies, but it is more likely that they were just pessimistic about a positive outcome in the trade war now that tensions escalated.

However, stocks started to recover slightly yesterday. This constant back and forth has given us a good chance to capitalize by selling more calls on ADBE, which acts as our exposure to the tech sector.

Its technical formation has set it up nicely for this kind of trade.

ADBE Continues to Consolidate

ADBE is continuing to consolidate in the down-trending “wedge” it has been in since early August. Even the company’s latest earnings announcement in mid-September wasn’t enough to dislodge the stock from this consolidation range.

Daily Chart of Adobe Systems, Inc. (ADBE) — Chart Source: TradingView

ADBE tried to break up above its down-trending resistance level on Sept. 26 and 27, but the stock couldn’t hold on to the bullish momentum. We are expecting the stock to continue consolidating in the near term.

We recommend choosing a strike price above ADBE’s post-earnings high of $285.90. That leaves space for the stock to rise, and if we choose a high enough strike, we won’t be in any danger of having our shares of ADBE called away from us.

We also recommend choosing an expiration date early in November. That way we can collect decent premium and potentially sell another call sooner rather than later.

To find out which ADBE covered calls we’re selling—and to get access to our full portfolio of income-generating trades—sign up for a risk-free trial of Strategic Trader today.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of, as well as the co-editors of Strategic Trader.

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