Chemical stocks continue to hold up fairly well in the market. So, let's consider a covered-call trade in water treatment equipment and chemical manufacturing play Hawkins, a stock that, like the general stock market, struggled in the first three months but has rebounded to a 12% gain so far in 2025.
Meanwhile, the S&P 500 and Nasdaq composite's rise has been severely limited, up 2.3% and 1.4%, respectively, for the year.
On Friday, Hawkins stock has moved as much as 11% above its pivot point of 125.70 in a cup with handle, according to MarketSurge. Having this in mind, here's a trade to enter with a risk-defined approach that allows a cushion if the chart fades with an upside profit that yields roughly 8% — so long as prices continue upward over time.
Hawkins also sells an array of industrial chemicals as well as surface finishing products. The company's custom toll blending, product development and manufacturing services address the biodiesel, agricultural, cleaning, semiconductor, energy, food, pharmaceutical and other industries. Toll blending is the service of mixing and processing raw materials or chemicals into a finished product.
In a covered call, selling a call option in Hawkins stock well into the future allows the trader to hold the stock at a discount.
If the stock continues to rise, the call option can be covered. Then a trader could open a new option against the stock. We call this "rolling the strike."
Stock Market Forecast For The Next Six Months: The IBD Take
Hawkins Stock: The Trade
The strategy here? Continue to both hold Hawkins stock and collect more revenue as time moves forward and as the stock continues to climb.
If the stock fades, we have a solid cushion of profit the short call provides.
Let's detail the trade. First, buy 100 shares of Hawkins stock, which recently traded at 135.88. Then sell to open 1 HWKN Dec. 19-expiring call with a 125 strike price. That option recently priced at $20.50 at the mark, or the midpoint between the best bid and best ask price.
In terms of cost, a 100-share position would allocate $13,588 to the stock. Selling the call would deliver a credit of $2,050. This means the break-even price of Hawkins stock at expiration comes to $13,588 - $2,050 =$11,538, less commissions. This implies the actual cost of each share falls to $115.38. Set an alert at this price.
If the stock gets called away at the strike at expiration because prices have moved north, the profit would be calculated by taking the strike price minus the new cost of each share: $125 - $115.38 = $9.62.
Trade Management
On Hawkins' stock chart, the relative resistance zone sits right around 140. Support sits near 109; that price happens to be the midpoint of the largest-volume candle of the year so far, according to a Japanese candlestick chart.
In terms of holding strategy, first, you could hold the stock and the option until expiration on Dec. 19. If the stock is above 125, then the trader will have to relinquish the stock at 125, thus collecting the difference between the actual cost of shares ($115.38) and the 125 strike. That comes out to $125-$115.38 = $9.62, or an 8% return.
Second, set an alert for 115.38, the break-even price. Sell the entire position if your risk thresholds are breached.
The bullish trader might ask, "Shouldn't I sell the call much further out of the money if I am bullish on the stock?" Yes. However, if the market has any retracements of importance, selling the strike at the money provides a tidy cushion of support while still buying the stock for potential upside.
Anne-Marie Baiynd is a 25-year veteran trader of stocks, options and futures and is the author of "The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology." You can find her on X at @AnneMarieTrades and on the IBD platform
