Covered Calls for Fun & Income

March 9, 2009

Confession – EXM

Filed under: Covered Calls — Tags: , , , , , — Jeff @ 11:25 AM

I know if I come clean with you on this I will sleep better at night 🙂

Back in May of 2008 I did a few Covered Calls on Excel Maritime Carriers (EXM). At that time they were a pretty hot stock and they paid a good dividend of .80 annually.  Shortly after that they raised their dividend to 1.80 annually. My Covered Call expired OTM , so I wrote another one – thinking the dividend would save me. Then in December of last year I did a whole bunch of Covered Calls on them when the price was in the $8-9 range – again smug in the knowledge that the dividend, now with a return of almost 20%, would protect me.

Along comes February, and Excel announces they are suspending their dividend – indefinitely. On top of that, they are adjusting charter fees down 50% in some cases. Guess what? Yup! Stock tanked and I am sitting with a whole bunch of shares.

So today I decided to do something about it when I saw the stock pop a bit. Thinking I could cut my loses a bit (rather than just selling it) I STO APR 5 Calls. My logic surrounds the huge pile of cash that I could use right now and would be willing to have them called away either at expiration or before – if the stock recovers enough.

Will the stock recover? Will the dividend return? Come April, depending on price action, should I roll or write new Calls? Oh, the suspense is killing me! I guess we will have to wait and see. For now, I can put it out of my mind for 6 more weeks and just monitor.

This is an example of why you need a trading plan (the confession part). Until I started this blog, I was not reviewing and evaluating my trades based on my already existing plan. Now that several people are watching my every move, I am much more disciplined – I think. Accumulating this stock while it was on the way down was really dumb. Assuming everything would remain the same (i.e., dividend) was naive.

I won’t track this on my In Play page because there have been several purchases at various prices and it would just clutter up the page. Besides, I came clear here for all to see. I will give you the final results once I close these (on the Summary page).

There, now I feel better. Go forth and sin no more.

Jeff

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