Trade Continuation: Realty Income (O) Covered Calls

Here is the transaction to date:

• 07/15/11               Bought 200 O @33.7846                                            -6766.91
• 07/15/11               Sold 2 O Dec 17 2011 35 Calls@.7                             +128.50
• 08/15/11               Dividend                                                                         +28.98
• 09/15/11               Dividend                                                                         +28.98
• 10/17/11               Dividend                                                                         +29.04
• 11/15/11               Dividend                                                                         +29.04
• 11/22/11               Bought 2 O Dec 17 2011 35 Calls@.05                          -10.03
• 11/22/11               Sold 2 O Mar 17 2012 35 Calls@.8                             +148.47

Our roll out today lowers the amount out of pocket on this investment to $6383.93. This equates to $31.91/share. Realty Income is "The Monthly Dividend Company." It has a rising dividend for many years now. Our yield on cost is up to ~5.5%. If these calls expire worthless we will collect 4 more dividends totalling at least $116.16 (assuming no increase). That will lower our amount out of pocket to $6267.77 or $31.33/share.

Realty Income in this gal's opinion is easy pickings for double digit returns. When one juices the monthly dividend with out of the money covered calls, the out of pocket drops monthly. I don't recommend Realty Income in taxable accounts because the dividends are taxed as regular income. For a tax free account, however, O is very yummy.

Profitable Trade: Realty Income (O) Covered Call

The trade with commissions is as follows:

10/4/11 Bought 100 shares of O - $3,034.27
10/4/11 STO 1 Nov 19, 2011 30 @1.75 - $164.23
10/28/11 Option assigned at 30 - $2979.95

At the time I bought Realty Income it was trading near the bottom of it's trade channel. We then sold an in the money call which I figured would get assigned. This call was assigned for the dividend. Realty Income pays a monthly dividend of 14.5 cents a share (and rising). I made $109.91 in 24 days or 3.83%, 58.24% annualized. I would have bought more but I have other Realty Income holdings and didn't want to get too heavily weighted in the REIT. Not bad for an in the money call...

BTW, here is a good article on Realty Income's future prospects.