Today I closed the following transaction for a profit:
09/04/12 STO 2 CAT Sep22 2012 77.5 Puts @.57 102.46
09/14/12 BTC 2 CAT Sep 22 2012 77.5 Puts @.01 -2.04
I was able to close this trade for a penny and without commissions so I did. When I originally sold the puts CAT was down to $82.20. Ten days later it was over $93/share. Due to the steady rise in the stock, margin maintenance averaged down to ~$1700. As such, we earned $100.42 in 10 days on $1700 in margin maintenance. This equates to a 5.9% return on maintenance or 215% annual.
That's another thing I love about put selling. If the price of the stock skyrockets, you can close out your trade early. Each day the stock rises the amount of margin maintenance needed decreases thereby freeing capital for other trades. I remember when I exclusively traded covered calls that it would not be beneficial if the stock rose too much or too quickly. Buying back the calls when volatility was in an uptrend was not very profitable.
Showing posts with label covered call strategy. Show all posts
Showing posts with label covered call strategy. Show all posts
Friday, September 14, 2012
Saturday, April 28, 2012
Put Selling over Covered Calls because...
1) Single commission;
2) If the stock shoots up in value, the value of the puts decline. Then close out. With covered calls if the stock shoots up so does the premium. This scenario is much trickier to close out for a profit.
3) If the stock declines a lot it sucks for both but it really sucks for covered calls as you bought at that price. Rolling options is much trickier on a covered call than a put when the stock declines. The out of the money put seller has a buffer of the out of the money strike plus the premium received before she gets hurt. In addition, it is much easier to roll down and out for a credit.
4) Leverage in a margin account is more powerful with puts. In fact there is no cost for using margin when selling puts.
5) Even though you don't collect dividends the premiums are higher on puts to reflect that.
Note: potential trades on my radar include PG, WMT and JNJ due to their recent weakness. A couple of strikes down from the present price, a couple or three months out oughta do ya. If they decline further it's easy to roll down and out for a credit.
2) If the stock shoots up in value, the value of the puts decline. Then close out. With covered calls if the stock shoots up so does the premium. This scenario is much trickier to close out for a profit.
3) If the stock declines a lot it sucks for both but it really sucks for covered calls as you bought at that price. Rolling options is much trickier on a covered call than a put when the stock declines. The out of the money put seller has a buffer of the out of the money strike plus the premium received before she gets hurt. In addition, it is much easier to roll down and out for a credit.
4) Leverage in a margin account is more powerful with puts. In fact there is no cost for using margin when selling puts.
5) Even though you don't collect dividends the premiums are higher on puts to reflect that.
Note: potential trades on my radar include PG, WMT and JNJ due to their recent weakness. A couple of strikes down from the present price, a couple or three months out oughta do ya. If they decline further it's easy to roll down and out for a credit.
Tuesday, January 24, 2012
Recent Trade Thoughts
I usually enter into new investments when the market is down and investors are fearful. For the last couple of weeks those times have been rare. I'm a patient person and I've learned to let the market come to me. There are some traders who I respect greatly, i.e., Bill Cara, who are bullish on the markets.
So why did I enter some trades when the market has been bullish? I didn't want to have the train leave the station with me standing on the platform. In any event, I only entered into some conservative out of the money put plays on stocks I would love to own. These were Coca-Cola, Proctor & Gamble and Johnson & Johnson. If put to me the yield on cost would be well above average. In addition, some of these are set to raise their dividends. I also entered into a covered call transaction on Conoco-Phillips. I like this one as they are going to spin off shares and are set to raise the dividend. It also diversifies us into oil and gas.
I've also been trading the precious metals which bottomed a couple of weeks ago. Now that they are back in their bullish trend I'm losing a bit of interest going forward. I'm looking for dips preferably large ones where folks are talking about precious metals cratering.
I think that GOOG may be providing a good opportunity for out of the money put writing, especially 30 or 40 points below where it's trading right now. I probably won't participate, however, as it violates my rule of only trading something I really want to own.
Other than these trades I think it's time to wait for a correction. Obvious opportunities should appear. I've got a ton of cash and margin to work with. With my recent trades I just took a little nibble in case we are off to new highs.
So why did I enter some trades when the market has been bullish? I didn't want to have the train leave the station with me standing on the platform. In any event, I only entered into some conservative out of the money put plays on stocks I would love to own. These were Coca-Cola, Proctor & Gamble and Johnson & Johnson. If put to me the yield on cost would be well above average. In addition, some of these are set to raise their dividends. I also entered into a covered call transaction on Conoco-Phillips. I like this one as they are going to spin off shares and are set to raise the dividend. It also diversifies us into oil and gas.
I've also been trading the precious metals which bottomed a couple of weeks ago. Now that they are back in their bullish trend I'm losing a bit of interest going forward. I'm looking for dips preferably large ones where folks are talking about precious metals cratering.
I think that GOOG may be providing a good opportunity for out of the money put writing, especially 30 or 40 points below where it's trading right now. I probably won't participate, however, as it violates my rule of only trading something I really want to own.
Other than these trades I think it's time to wait for a correction. Obvious opportunities should appear. I've got a ton of cash and margin to work with. With my recent trades I just took a little nibble in case we are off to new highs.
Friday, January 20, 2012
Trade Continuation: Conoco Phillips (COP) Covered Calls
Today in a taxable account I continued the following transaction:
01/13/2012 Bought 200 COP @ 70.29 -14,067.97
01/13/2012 STO 2 COP Jan 21 2012 70 Calls @.99 186.47
01/20/2012 BTC 2 COP Jan 21 2012 70 Calls @.77 -165.52
01/20/2012 STO 2 COP Jan 27 2012 70 Calls @1.35 +258.45
We rolled the covered call for a net credit of $92.93. This lowers our out of pocket to $13788.57 or $68.94/share. If we get called away we will make $190.43 in 2 weeks. This equates to a return of 1.4% or 35.9% annual. Before we get exercised we will look to roll the options again with an eye on the weeklys.
01/13/2012 Bought 200 COP @ 70.29 -14,067.97
01/13/2012 STO 2 COP Jan 21 2012 70 Calls @.99 186.47
01/20/2012 BTC 2 COP Jan 21 2012 70 Calls @.77 -165.52
01/20/2012 STO 2 COP Jan 27 2012 70 Calls @1.35 +258.45
We rolled the covered call for a net credit of $92.93. This lowers our out of pocket to $13788.57 or $68.94/share. If we get called away we will make $190.43 in 2 weeks. This equates to a return of 1.4% or 35.9% annual. Before we get exercised we will look to roll the options again with an eye on the weeklys.
Monday, January 2, 2012
Dogs of the Dow look very tradeable for 2012
The 2012 Dogs of the Dow look like strong candidates for enhanced income strategies. They are these stocks. When one combines their yields with covered calls or out of the money put selling the returns can easily be double digit %'s for the year. With the volatility in the market we would recommend writing in the money or at the money covered calls and out of the money put writing. One should be aware of the ex-dividend date as well as when earnings are to be reported. Try to enter positions that capture the dividend and consider avoiding entering new positions before earnings are released or you may experience a gap down.
Thursday, December 22, 2011
Profitable Trade: Exxon Mobil (XOM) Covered Call
Today I took profits in XOM in a traditional IRA. The transaction looks like this:
12/12/2011 BTC 1 XOM Dec 17 @ 4.6 -470.76
12/12/2011 STO 1 XOM Jan 21 2012 @ 5.6 +549.22
12/22/2011 BTC 1 XOM Jan 21 2012 @ 9.35 -945.76
12/22/2011 Sold 100 XOM @ 84.19 +8408.94
We made $452.64 on this transaction in 13 weeks. Our average out of pocket in this trade was ~$7200. This equates to ~6.3% return or 25.14% annual.
With the run up in the price we pretty much drained all the time decay out of this trade. By closing out early we have more powder in the keg for the next downturn.
09/30/2011 13:44:08 Bought 100 XOM @ 74.3982 -7,449.81
09/30/2011 13:44:50 Sold 1 XOM Oct 7 2011 75.0
Call @ 1.19 108.23
10/07/2011 10:15:56 Bought 1 XOM Oct 7 2011 75.0
Call @ 0.05 -5.02
10/07/2011 10:16:25 Sold 1 XOM Oct 14 2011 75.0
Call @ 0.76 65.23
10/13/2011 09:59:16 Bought 1 XOM Oct 14 2011 75.0
Call @ 1.62 -172.76
10/13/2011 09:59:48 Sold 1 XOM Nov 19 2011 75.0
Call @ 3.35 324.23
11/11/2011 15:11:53 Bought 1 XOM Nov 19 2011 75.0
Call @ 4.6 -470.76
11/11/2011 15:12:58 Sold 1 XOM Dec 17 2011 75.0
Call @ 5.45 534.22
12/09/2011 Dividend +47.00
12/12/2011 BTC 1 XOM Dec 17 @ 4.6 -470.76
12/12/2011 STO 1 XOM Jan 21 2012 @ 5.6 +549.22
12/22/2011 BTC 1 XOM Jan 21 2012 @ 9.35 -945.76
12/22/2011 Sold 100 XOM @ 84.19 +8408.94
We made $452.64 on this transaction in 13 weeks. Our average out of pocket in this trade was ~$7200. This equates to ~6.3% return or 25.14% annual.
With the run up in the price we pretty much drained all the time decay out of this trade. By closing out early we have more powder in the keg for the next downturn.
Monday, December 19, 2011
Trade Continuation: GDX Covered Call
Today I continued a GDX Gold Miner's ETF investment in a traditional IRA as follows:
10/25/2011 10:37:57 Bought 100 GDX @ 56.7268 -5,682.67
10/25/2011 10:38:30 Sold 1 GDX Oct 28 2011 56.0 Call @ 1.52 141.23
10/27/2011 10:52:44 Bought 1 GDX Oct 28 2011 56.0 Call @ 3 -310.76
10/27/2011 10:53:06 Sold 1 GDX Nov 19 2011 56.0 Call @ 4.1 399.23
11/10/2011 10:11:02 Bought 1 GDX Nov 19 2011 56.0 Call @ 4.6 -470.76
11/10/2011 10:12:04 Sold 1 GDX Dec 17 2011 56.0 Call @ 5.75 564.22
12/19/2011 10:15:55 Sold 1 GDX Feb 18 2012 56.0 Call @ 1.5 139.23
With this transaction our amount out of pocket is down to $52.20/share. That's good because the ETF has dropped to 52 and change. We are bullish the precious metals and believe that the recent downturn provides a buying opportunity. In fact we have some GDX puts that we wrote at the 52 strike.
It should be noted that before we entered into this trade we actually collected $489.25 in put money which we are not reflecting in these calculations. In any event, if we get called away in February we will make $380 which equates to 6.9% or ~21.1% annual. If we don't get called away then we'll write new calls, with a good hard look being given to the 56 strike again.
10/25/2011 10:37:57 Bought 100 GDX @ 56.7268 -5,682.67
10/25/2011 10:38:30 Sold 1 GDX Oct 28 2011 56.0 Call @ 1.52 141.23
10/27/2011 10:52:44 Bought 1 GDX Oct 28 2011 56.0 Call @ 3 -310.76
10/27/2011 10:53:06 Sold 1 GDX Nov 19 2011 56.0 Call @ 4.1 399.23
11/10/2011 10:11:02 Bought 1 GDX Nov 19 2011 56.0 Call @ 4.6 -470.76
11/10/2011 10:12:04 Sold 1 GDX Dec 17 2011 56.0 Call @ 5.75 564.22
12/19/2011 10:15:55 Sold 1 GDX Feb 18 2012 56.0 Call @ 1.5 139.23
With this transaction our amount out of pocket is down to $52.20/share. That's good because the ETF has dropped to 52 and change. We are bullish the precious metals and believe that the recent downturn provides a buying opportunity. In fact we have some GDX puts that we wrote at the 52 strike.
It should be noted that before we entered into this trade we actually collected $489.25 in put money which we are not reflecting in these calculations. In any event, if we get called away in February we will make $380 which equates to 6.9% or ~21.1% annual. If we don't get called away then we'll write new calls, with a good hard look being given to the 56 strike again.
Trade Continuation AT&T (T) Covered Call
Today in a traditional IRA I continued the following transaction:
06/27/2011 Bought 200 T @ 30.889 -6187.79
06/27/2011 STO 2 Aug 20 2011 31 Calls @.53 +94.50
08/01/2011 Dividend +86.00
08/03/2011 BTC 2 Aug 20 2011 31 Calls@.05 -10.00
08/03/2011 STO 2 Jan 21 2012 31 Calls@.66 +120.50
11/01/2011 Dividend +86.00
11/22/2011 BTC 2 Jan 21 2012 31 Calls@.05 -10.00
12/02/2011 STO 2 Dec 17 2011 29 Calls@.38 +64.47
12/19/2011 STO 2 Feb 18 2012 29 Calls@.59 +106.47
With this latest transaction we have lowered our out of pocket to $5649.85 or $28.24/share. AT&T goes ex-dividend on January 6 with their raised dividend of .44/share. We might get called out but I doubt it since our expiration date is 6 weeks later.
We are recovering nicely in this trade after arguably paying too much for the stock to start. I wasn't religiously following the charts and only entering an investment at the bottom of the trade cycle when I entered this trade. Nevertheless if we collect the dividend our amount out of pocket will drop to $5561.85 or $27.81/share.
If we get called away in February and don't roll the position our profit will be $218.15 which equates to 3.5% or 5.3% annual. This is not great but it is still a profit on a stock that dropped in price from the time we bought it. I like the stock at cheaper entry points and have written some out of the money puts at the 27.5 strike price in other accounts.
06/27/2011 Bought 200 T @ 30.889 -6187.79
06/27/2011 STO 2 Aug 20 2011 31 Calls @.53 +94.50
08/01/2011 Dividend +86.00
08/03/2011 BTC 2 Aug 20 2011 31 Calls@.05 -10.00
08/03/2011 STO 2 Jan 21 2012 31 Calls@.66 +120.50
11/01/2011 Dividend +86.00
11/22/2011 BTC 2 Jan 21 2012 31 Calls@.05 -10.00
12/02/2011 STO 2 Dec 17 2011 29 Calls@.38 +64.47
12/19/2011 STO 2 Feb 18 2012 29 Calls@.59 +106.47
With this latest transaction we have lowered our out of pocket to $5649.85 or $28.24/share. AT&T goes ex-dividend on January 6 with their raised dividend of .44/share. We might get called out but I doubt it since our expiration date is 6 weeks later.
We are recovering nicely in this trade after arguably paying too much for the stock to start. I wasn't religiously following the charts and only entering an investment at the bottom of the trade cycle when I entered this trade. Nevertheless if we collect the dividend our amount out of pocket will drop to $5561.85 or $27.81/share.
If we get called away in February and don't roll the position our profit will be $218.15 which equates to 3.5% or 5.3% annual. This is not great but it is still a profit on a stock that dropped in price from the time we bought it. I like the stock at cheaper entry points and have written some out of the money puts at the 27.5 strike price in other accounts.
Monday, December 12, 2011
Trade Continuation: Exxon Mobil (XOM) Covered Call
Today with the DOW down 218 points to 11965 and XOM at ~79.60 I continued the following transaction:
09/30/2011 13:44:08 Bought 100 XOM @ 74.3982 -7,449.81
09/30/2011 13:44:50 Sold 1 XOM Oct 7 2011 75.0
Call @ 1.19 108.23
10/07/2011 10:15:56 Bought 1 XOM Oct 7 2011 75.0
Call @ 0.05 -5.02
10/07/2011 10:16:25 Sold 1 XOM Oct 14 2011 75.0
Call @ 0.76 65.23
10/13/2011 09:59:16 Bought 1 XOM Oct 14 2011 75.0
Call @ 1.62 -172.76
10/13/2011 09:59:48 Sold 1 XOM Nov 19 2011 75.0
Call @ 3.35 324.23
11/11/2011 15:11:53 Bought 1 XOM Nov 19 2011 75.0
Call @ 4.6 -470.76
11/11/2011 15:12:58 Sold 1 XOM Dec 17 2011 75.0
Call @ 5.45 534.22
12/09/2011 Dividend +47.00
12/12/2011 BTC 1 XOM Dec 17 @ 4.6 -470.76
12/12/2011 STO 1 XOM Jan 21 2012 @ 5.6 +549.22
We wrung out all the time decay on this one so I rolled the deep in the money call for a net credit of $78.46. This lowers our amount invested to $7010.54 or $70.10/share. We have been able to roll in the money calls on a monthly basis for a nice double dividend. These series of transactions illustrate the enhanced income strategy we have come to know and love.
Wednesday, November 30, 2011
Trading a Bipolar Market
Today the futures are up big, building on Monday's momentum. Last week the world economy was headed toward sure collapse. China is in a bubble...no wait....China's government is taking action to support banks. The end of the Euro...no wait...world bankers are getting together to support the whole world economy. Back and forth it goes...
So what's a gal to do in this mad, mad, man's world? Read the charts baby, that's what. I'm selling out of the money puts at or below a stocks lows during the last year. I'm only entering new income positions when the bipolar meter is set to doom, gloom, dog and cats living together.
With such high volatility there are above average premiums to be collected out there. Even deep in the money covered calls are providing double digit annual returns. Lovin' it! Yumsicle!...*clears throat*...where was I? Oh yeah..
And all this money to be made on widow and orphan blue chip Dividend Champions. If one wants to get a little racy they can trade the precious metals etf's like GLD, SLV and GDX. They don't pay dividends but the option premiums are juicy and this gal loves long term secular bulls.
Be greedy when others are fearful. Be fearful when others are greedy. Buy low, sell high. Only invest in those stocks that you are happy to own for the long haul. Only roll options for a credit. Don't stand under a tree holding a golf club when it's lightning. And finally: What's sexier then a hot babe who can trade the average guy under the table? :)
So what's a gal to do in this mad, mad, man's world? Read the charts baby, that's what. I'm selling out of the money puts at or below a stocks lows during the last year. I'm only entering new income positions when the bipolar meter is set to doom, gloom, dog and cats living together.
With such high volatility there are above average premiums to be collected out there. Even deep in the money covered calls are providing double digit annual returns. Lovin' it! Yumsicle!...*clears throat*...where was I? Oh yeah..
And all this money to be made on widow and orphan blue chip Dividend Champions. If one wants to get a little racy they can trade the precious metals etf's like GLD, SLV and GDX. They don't pay dividends but the option premiums are juicy and this gal loves long term secular bulls.
Be greedy when others are fearful. Be fearful when others are greedy. Buy low, sell high. Only invest in those stocks that you are happy to own for the long haul. Only roll options for a credit. Don't stand under a tree holding a golf club when it's lightning. And finally: What's sexier then a hot babe who can trade the average guy under the table? :)
Monday, November 14, 2011
Paying $$ to Chase Stock Appreciation
Management is key to successful enhanced income investing. One of the issues that arises is what to do when a stock rises above your strike price?
I'm going to tell you something I wish someone would have told me: Don't pay money to chase appreciation. In fact, if you've read some of the trade continuations I've done lately you will see that I've gotten paid to participate in an issues appreciation. If I can't get paid to capture appreciation I will look to get paid to roll out the next expiration or two at the same strike price. This will bring in income and lower the amount I have invested. If the stock has appreciated so much that neither of these are viable I'll either let the shares be assigned or I'll close the position myself.
In other words, I'll only sell an option for a credit. If that can't be done in a way that's worthwhile then that's when I sell a stock. It should be noted that I only invest in stocks I would want to hold long term, i.e., Dividend Champions, Aristocrats or Contenders, all with rising dividends or precious metal ETFs which I believe are in a long term secular bull market.
I'm going to tell you something I wish someone would have told me: Don't pay money to chase appreciation. In fact, if you've read some of the trade continuations I've done lately you will see that I've gotten paid to participate in an issues appreciation. If I can't get paid to capture appreciation I will look to get paid to roll out the next expiration or two at the same strike price. This will bring in income and lower the amount I have invested. If the stock has appreciated so much that neither of these are viable I'll either let the shares be assigned or I'll close the position myself.
In other words, I'll only sell an option for a credit. If that can't be done in a way that's worthwhile then that's when I sell a stock. It should be noted that I only invest in stocks I would want to hold long term, i.e., Dividend Champions, Aristocrats or Contenders, all with rising dividends or precious metal ETFs which I believe are in a long term secular bull market.
Trade Continuation: Intel (INTC) Covered Call
Today with the DOW down ~31 and INTC at 24.75 I entered into the following transaction in a Roth IRA:
Bought 2 INTC Nov 19 2011 24 Calls @ .89 -189.52
Sold 2 INTC Jan 21 2012 24 Calls @ 1.70 +328.47
I rolled these in the money calls for a net credit of $138.95. In addition we will receive a $42 dividend on December 1st. This lowers our cost basis/amount invested to $22.67/share. Our assigned gain after commissions is $246 or 5.2% which equates to ~24.7% annually. At $22.67 our yield on cost is 3.7%. Intel is a company that I am interested in holding for the long term and this investment has me sleeping like a baby at night.
Bought 2 INTC Nov 19 2011 24 Calls @ .89 -189.52
Sold 2 INTC Jan 21 2012 24 Calls @ 1.70 +328.47
I rolled these in the money calls for a net credit of $138.95. In addition we will receive a $42 dividend on December 1st. This lowers our cost basis/amount invested to $22.67/share. Our assigned gain after commissions is $246 or 5.2% which equates to ~24.7% annually. At $22.67 our yield on cost is 3.7%. Intel is a company that I am interested in holding for the long term and this investment has me sleeping like a baby at night.
Sunday, November 13, 2011
Futures are up on Italy news
I have to admit it feels a little strange to root for a down market as that scenario sets up the best income investments. I like to buy when others are fearfully selling and sell when others are greedily buying. In other words, I won't enter a new income position when the market is overbought as better opportunities present themselves when the market is oversold.
From a macro view I have to question the herds exuberance. There is going to be new Italian leadership. Since when has any government effectively solved economic problems? Insofar as new leadership I always think The Who had it right with their line: Meet the new boss, Same as the old boss.
We live in a time of great debt, money printing, currency debasement and in my view the end of economic growth. Bottom line: the sheet is going to hit the fan and when it does I want to have lots of cash and what investments I do have are going to be on Dividend Champions and precious metals. Even then I plan to write calls in the money and sell puts out of the money so that when things drop I have a lowered cost basis and increased yields.
In the meantime it looks like this gal will just have to be patient and wait for the herd's exuberance and economic reality to realign. In other words, be afraid...be very afraid.
From a macro view I have to question the herds exuberance. There is going to be new Italian leadership. Since when has any government effectively solved economic problems? Insofar as new leadership I always think The Who had it right with their line: Meet the new boss, Same as the old boss.
We live in a time of great debt, money printing, currency debasement and in my view the end of economic growth. Bottom line: the sheet is going to hit the fan and when it does I want to have lots of cash and what investments I do have are going to be on Dividend Champions and precious metals. Even then I plan to write calls in the money and sell puts out of the money so that when things drop I have a lowered cost basis and increased yields.
In the meantime it looks like this gal will just have to be patient and wait for the herd's exuberance and economic reality to realign. In other words, be afraid...be very afraid.
Friday, November 11, 2011
Trade Continuation: Exxon Mobil (XOM) Covered Call
Today with the DOW up 250 points and XOM at 79.40 I continued the following transaction:
09/30/2011 13:44:08 Bought 100 XOM @ 74.3982 -7,449.81
09/30/2011 13:44:50 Sold 1 XOM Oct 7 2011 75.0
Call @ 1.19 108.23
10/07/2011 10:15:56 Bought 1 XOM Oct 7 2011 75.0
Call @ 0.05 -5.02
10/07/2011 10:16:25 Sold 1 XOM Oct 14 2011 75.0
Call @ 0.76 65.23
10/13/2011 09:59:16 Bought 1 XOM Oct 14 2011 75.0
Call @ 1.62 -172.76
10/13/2011 09:59:48 Sold 1 XOM Nov 19 2011 75.0
Call @ 3.35 324.23
11/11/2011 15:11:53 Bought 1 XOM Nov 19 2011 75.0
Call @ 4.6 -470.76
11/11/2011 15:12:58 Sold 1 XOM Dec 17 2011 75.0
Call @ 5.45 534.22
In addition to these amounts we will be receiving a $47 dividend on December 9th. As such our out of pocket investment is down to $70.89/share. At $70.89 our yield on cost is up to 2.65%. If we get called away on December 17th we will make ~$401 or 5.4% which equates to 25.6% annual. That ain't bad for a deep in the money call written on a rock solid Dividend Champion.
Interesting note: One of the complaints about covered calls is that it limits one's upside. In this instance I would be up $100 more if I hadn't written any calls. I like it better the way I am, however, because I've get less capital invested and, as such, have much more downside protection. In addition, I don't fancy myself a stock picker but I do feel confident in my ability to trade a great stock through the collection of option premium to put myself in situation where I can't lose money. The top three rules of investing? 1) Don't lose money; 2 & 3) See rule number 1. ~ Warren Buffett
Interesting note: One of the complaints about covered calls is that it limits one's upside. In this instance I would be up $100 more if I hadn't written any calls. I like it better the way I am, however, because I've get less capital invested and, as such, have much more downside protection. In addition, I don't fancy myself a stock picker but I do feel confident in my ability to trade a great stock through the collection of option premium to put myself in situation where I can't lose money. The top three rules of investing? 1) Don't lose money; 2 & 3) See rule number 1. ~ Warren Buffett
Great Strategy Article
This article from our friends at Double Dividend stocks does a really nice job of setting forth my main investment strategies. Double digit returns on stocks that are fit for orphans and widows? Count this gal in!
Monday, November 7, 2011
Put Selling or Covered Calls?
In this article the author makes some good points as to why put selling is superior to covered calls. I found the double commission one pays on covered calls to be an excellent point.
Friday, November 4, 2011
Trade Continuation: Microsoft (MSFT) Covered Call
This afternoon I continued my recent MSFT trade as follows:
11/01/2011 13:29:58 Bought 200 MSFT @ 26.029 -5,215.79
11/01/2011 13:31:11 Sold 2 MSFT Nov 4 2011 26.0
Call @ 0.36 60.47
11/04/2011 14:52:03 Bought 2 MSFT Nov 04 2011
26.0 Call @ 0.25 -61.52
11/04/2011 14:52:44 Sold 2 MSFT Dec 17 2011 26.0
Call @ 0.88 164.45
I really got my panties in a wad over this little trade. MSFT was ~26.23 at the time I rolled the position. None of my options were very exciting. I decided to set myself up to collect the .20 dividend and lower the amount I had in the position to $5052.39 ($25.26/share) by rolling the call. If and when I collect the dividend I will have $25.06/share invested.
Maybe this position will be the one where I reach my goal of collecting income until I have zero dollars invested out of pocket... :)
Note: We will be receiving the MSFT dividend.
Maybe this position will be the one where I reach my goal of collecting income until I have zero dollars invested out of pocket... :)
Note: We will be receiving the MSFT dividend.
What to do with my MSFT trade?
Here is my initial trade:
It's option expiration today on the weekly. MSFT is trading at ~26.22 as of this writing. If I roll out the 26 a week most of the gain will be eaten by commissions in and out. While weekly options are terrific it should be noted that to roll from one week to the next one must have a substantial number of contracts otherwise commissions may make rolling cost prohibitive.
Two weeks out we'll gain ~.30/share after commissions and if it stays in the money we'll probably get called away early on the 14th so someone else can collect the dividend. There is a .20/share dividend in it for me if I can hold the stock through the 14th.
43 days away at the 26 strike I can collect ~.46/share and probably still collect the dividend for a total of .66/share. It seems to me my options today are to get assigned and make my little bit of dough which is nice on an annualized basis or tie up capital for a month and a half and have more potential gain but less powder in the keg should the market tank.
Note: It looks like the market might break down. That is fine for me as my favorite scenario is that MSFT ends up slightly under 26 and these 2 calls expire worthless. On the other hand if I roll a week I get the great time decay over the weekend. I read a study that showed that ATM or OTM weekly option calls drop ~30% over the weekend due to time decay.
11/01/2011 13:29:58 Bought 200 MSFT @ 26.029 -5,215.79
11/01/2011 13:31:11 Sold 2 MSFT Nov 04 2011 26.0
Call @ 0.36 60.47
It's option expiration today on the weekly. MSFT is trading at ~26.22 as of this writing. If I roll out the 26 a week most of the gain will be eaten by commissions in and out. While weekly options are terrific it should be noted that to roll from one week to the next one must have a substantial number of contracts otherwise commissions may make rolling cost prohibitive.
Two weeks out we'll gain ~.30/share after commissions and if it stays in the money we'll probably get called away early on the 14th so someone else can collect the dividend. There is a .20/share dividend in it for me if I can hold the stock through the 14th.
43 days away at the 26 strike I can collect ~.46/share and probably still collect the dividend for a total of .66/share. It seems to me my options today are to get assigned and make my little bit of dough which is nice on an annualized basis or tie up capital for a month and a half and have more potential gain but less powder in the keg should the market tank.
Note: It looks like the market might break down. That is fine for me as my favorite scenario is that MSFT ends up slightly under 26 and these 2 calls expire worthless. On the other hand if I roll a week I get the great time decay over the weekend. I read a study that showed that ATM or OTM weekly option calls drop ~30% over the weekend due to time decay.
Wednesday, November 2, 2011
New Trade: Intel (INTC) Covered Call
This morning I entered into the following transaction:
11/02/2011 10:27:54 Bought 200 INTC @ 23.8875 -4,787.49
11/02/2011 10:28:23 Sold 2 INTC Nov 19 2011 24.0
Call @ 0.42 72.47
Tomorrow is ex-dividend so unless we get assigned today we will capture the $42 dividend. I love my Double-D's! (double dividends, silly)... The second "dividend" is the short call premium we've collected. Our cost basis/downside protection in this trade is $23.57. Intel has weekly options so there are a variety of ways to manage this trade.
Tuesday, November 1, 2011
Good Article on Microsoft (MSFT) and Intel (INTC)
In the course of my reading today I came across an article I'd like to share. Microsoft and Intel are both raising their dividends at healthy clips, are very heavily traded and have great fundamentals. This makes them ideal enhanced income investments assuming one initiates their position when the stock is trading near the bottom of their trading channel. It's interesting to me that some high flyers during the dot com boom are now strong conservative income plays. Look for this gal to trade these issues when the opportunity arises. In fact I initiated a Microsoft investment earlier this afternoon.
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