Profitable Trade: AT&T Covered Calls

Today in a traditional IRA our shares of AT&T were assigned so that the investor on the other side could capture the dividend. The entire set of transactions looks like this:

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
01/06/2012    Sold 200 T @ 29                                             +5779.89

We made $130.04 in this series of of transactions. This equates to ~ 2.2% or ~4.1% annual. We're fine with this as we probably paid too much to enter the position and it was sitting there as dead money waiting for the dividend. I thought in December when the T-Mobile deal was falling through that the price would stay below 29. Oh well, I'll enter this position again at my price through the selling of puts. In this particular account we are sitting on a ton of cash, waiting for the next downturn to enter new positions.

Even though the profit on this was small, a profit still it was. I guessed wrong a couple of times but still pulled in enough income to pull a profit.

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.