Covered Calls for Fun & Income

March 13, 2009

Friday the 13th Activity

I was watching my open positions closely this week as the market rallied. This morning I decided to close the positions that were showing me enough profit to justify this decision. As you know, we are in a very volatile environment and anytime you can take money off the table profitably, you should do it – at least that the way that I play the game.

Although none of these positions turned the profit that I would have had if they had expired ITM next Friday, I was very apprehensive about leaving them ride for another week. Monday’s always tend to scare me anyway as we never know what the week has in store for us.

So here’s what I did:

Closed ILMN – Gain if called out = 11.96% Gain with early close = 9.54%

Closed YHOO – Gain if Exp ITM = 5.91% Gain with early close = 4.46%

Closed ERTS – Gain if EXP ITM = 13.49% Gain with early close = 9.37%

These are actual gains after broker commissions.

See my Closed Positions page for any additional information.

So far this year I have only 1 realized looser, and I consider myself pretty lucky at this point. The realized gain on my account (this is not the account balance increase – just the gain for closed positions (see my confession)) is 9.27%. I base this on the realized gain against the closing balance on my account as of December 31, 2008.

I would have liked to get this info out sooner, but I never intended for this to be an alert service and it never will be. I just want to show my readers that Covered Calls can be profitable in almost any market condition.

Take a look at my new page that discusses various strategies for adjusting trades. Feel free to leave a note and tell me what you think.

Jeff

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6 Comments »

  1. Jeff, I did the same thing a couple of weeks ago with Yahoo. I had bought it in Jan and wrote a April 12 call. Yahoo seemed to be the only stock bucking the current trend so I decided to close the call and sell the stock for a 6.7% gain after two months.

    I rolled forward an INTEL call yesterday as well. I bought INTEL back in early Dec and have rolled it forward three times now for a collective gain of 16.3% to date. Have lowered my cost per share of the stock over 200 basis points so far. I’m like you, we have had a nice bounce this past week and figured waiting until next week to roll it forward may cost me some profit. I think taking consistent small gains is better than trying for bigger premiums in months farther out.

    Rich

    Comment by Rich — March 14, 2009 @ 9:17 AM

    • Rich,

      Kudos to you! I realize there are many strategies for playing Covered Calls, but the method that I use works very well for me – and it sounds like you are coming from the same place.

      One of the few things Cramer has ever said that rings true is “Bulls, make money, Bears make money, and Pigs get slaughtered”. My experience has been trying to eek out that last 1-2% gain has cost dearly.

      I would love to hear how INTC works out for you. What would your gain be if you closed it now?

      Jeff

      Comment by Jeff — March 14, 2009 @ 9:51 AM

  2. I’m not sure if this is how you would calculate it but…

    I bought INTC @ 13.45. call premiums have lowered the net cost basis to 11.26. INTC closed yesterday at 14.70. So, assuming everything stayed the same and the call expired today and I sold the stock I guess my gain would be 30%. Thats how I think we should compute the gain.

    Comment by Rich — March 14, 2009 @ 2:05 PM

    • Your calculation is correct, but if you closed it now you would have to buy back the (I assume) April Call, which would raise you cost basis. You should also include you commissions in your final calculation. At this point it’s a good idea to hang on to this since its a good stock and it pays a nice dividend. Did you roll to an APR 15?

      Let me know what you do with this in the future.

      Comment by Jeff — March 14, 2009 @ 3:34 PM

  3. I rolled it to a Jul 14. couldn’t get a june call, the next dividend should be early June. I already got the March dividend of $14. I did all this because I wanted to take some profit now, not knowing what the market will do by April expiration. Would rather not have to sell calls out that far but I think it was the closest one I could sell that would justify the cost of buying back the call. Time will tell if this turns out to bite me in the butt. Being optimistic, I’m hoping that the market will start to consolidate some now so things can settle out.

    Comment by Rich — March 14, 2009 @ 4:40 PM

  4. With that dividend, you can subtract $0.14 from your cost basis to figure total return. Although it has not happened to me (yet),with an ITM Call you may have your shares called away. But that’s OK since you have planned it that way and you are not upside down – and, if you have a good broker, you will not incur any commission costs.

    Now that I know what you strike price is, you would end up with a gain of 25.89% – including your dividend. That’s very good!

    Jeff

    Comment by Jeff — March 15, 2009 @ 5:29 AM


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