Money and Finance
Today I sold 2 option contracts in an attempt to add some more income. The first contract that I sold was the BAC Jan 18 2014 $7 Put for $1.73. If the option gets exercised then my cost basis for this transaction will be $5.27. If the option expires then I will pocket the $173 less commission for the option. I figured that since I would be a buyer of BAC on a dip down into the $5 range it made sense to get paid to wait for that price. If put goes unexercised then I will earn $173 less commission on the $700 that is committed to this order which works out to a 23.47% total return in about 23 months. That gives me around an 11.37% CAGR on the money while I wait. Considering I'd be happy either way this trade works out it made sense to make the trade.
The other contract that I sold was the HAL Jul 21 2012 $42 Call for $1.60. Thanks to my ESPP I was able to purchase these shares for a cost basis of $29.33. There's 3 things that I look for when selling covered calls with a 4-6 month expiration. (1)Premium yield - the percentage of the amount you are paid divided by the option exercise price. I target a minimum of 1.5% on my premium yield.
(2)Margin of safety - (Premium + Dividends Rec'd) / Current Price. This is the downside protection that the shares would have to drop to counteract the premium you receive. I target a 4% margin of safety.
(3)Upside Profit - (Premium + Dividends + Strike Price - Current Price) / Current Price. This is the amount you would make if the option is exercised on the expiration date. I target at least a 6% total upside.
Here's the numbers for the HAL Call that I sold.
(1) 3.62%
(2) 4.65%
(3) 19.53%
If the option expires I will receive just the premium yield which works out to a 7.98% CAGR. The margin of safety for this trade I'm not too worried about because ideally the option won't be exercised and I can keep the shares to avoid the Disqualifying Disposition effect from the ESPP. The upside profit is great being another 19.53% higher than if I sold out now. Based on the purchase price of the shares my payout would be a 49.3% gain. I'm hoping for the option to just expire and feel that it very well could. The stock has to have a 15% move up from current prices to reach the strike price.
- Lots Of Options
No this post isn't about all the great investment opportunities that Mr. Market is giving us, it's about all of my recent option trading/selling activity. There's been a lot more activity on this front than I expected to be reporting. My...
- Recent Transaction
Yesterday I sold another call option on some of my shares of HAL, my ESPP shares. I'm currently way overweight my employer's stock. I have just over 184 shares from the first purchase that went through that has already reached LTCG treatment...
- Selling Puts For Added Income
This morning Archer-Daniels Midland was trading at $26.97. Since I would like to get more into the stock with it trading around a 14% discount to my calculated fair value, I figured I would check out the potential option moves to make. The fair value...
- Recent Transaction
This is going in the Recent Buy section even though I didn't buy anything. I sold a put contract for Intel today expiring July 20, 2012. The strike price is for $25 and I sold it for $0.53 per share or $53. By selling this put contract I was able...
- Selling Puts For Added Income
As promised, here are my put option plays to target a specific entry price on Procter & Gamble (PG). Procter & Gamble closed trading on 4/18/12 at $66.76. It is a Dividend Aristocrat with 55 consecutive years of raising their dividend. The lowest of their...
Money and Finance
Recent Transactions
Today I sold 2 option contracts in an attempt to add some more income. The first contract that I sold was the BAC Jan 18 2014 $7 Put for $1.73. If the option gets exercised then my cost basis for this transaction will be $5.27. If the option expires then I will pocket the $173 less commission for the option. I figured that since I would be a buyer of BAC on a dip down into the $5 range it made sense to get paid to wait for that price. If put goes unexercised then I will earn $173 less commission on the $700 that is committed to this order which works out to a 23.47% total return in about 23 months. That gives me around an 11.37% CAGR on the money while I wait. Considering I'd be happy either way this trade works out it made sense to make the trade.
The other contract that I sold was the HAL Jul 21 2012 $42 Call for $1.60. Thanks to my ESPP I was able to purchase these shares for a cost basis of $29.33. There's 3 things that I look for when selling covered calls with a 4-6 month expiration. (1)Premium yield - the percentage of the amount you are paid divided by the option exercise price. I target a minimum of 1.5% on my premium yield.
(2)Margin of safety - (Premium + Dividends Rec'd) / Current Price. This is the downside protection that the shares would have to drop to counteract the premium you receive. I target a 4% margin of safety.
(3)Upside Profit - (Premium + Dividends + Strike Price - Current Price) / Current Price. This is the amount you would make if the option is exercised on the expiration date. I target at least a 6% total upside.
Here's the numbers for the HAL Call that I sold.
(1) 3.62%
(2) 4.65%
(3) 19.53%
If the option expires I will receive just the premium yield which works out to a 7.98% CAGR. The margin of safety for this trade I'm not too worried about because ideally the option won't be exercised and I can keep the shares to avoid the Disqualifying Disposition effect from the ESPP. The upside profit is great being another 19.53% higher than if I sold out now. Based on the purchase price of the shares my payout would be a 49.3% gain. I'm hoping for the option to just expire and feel that it very well could. The stock has to have a 15% move up from current prices to reach the strike price.
- Lots Of Options
No this post isn't about all the great investment opportunities that Mr. Market is giving us, it's about all of my recent option trading/selling activity. There's been a lot more activity on this front than I expected to be reporting. My...
- Recent Transaction
Yesterday I sold another call option on some of my shares of HAL, my ESPP shares. I'm currently way overweight my employer's stock. I have just over 184 shares from the first purchase that went through that has already reached LTCG treatment...
- Selling Puts For Added Income
This morning Archer-Daniels Midland was trading at $26.97. Since I would like to get more into the stock with it trading around a 14% discount to my calculated fair value, I figured I would check out the potential option moves to make. The fair value...
- Recent Transaction
This is going in the Recent Buy section even though I didn't buy anything. I sold a put contract for Intel today expiring July 20, 2012. The strike price is for $25 and I sold it for $0.53 per share or $53. By selling this put contract I was able...
- Selling Puts For Added Income
As promised, here are my put option plays to target a specific entry price on Procter & Gamble (PG). Procter & Gamble closed trading on 4/18/12 at $66.76. It is a Dividend Aristocrat with 55 consecutive years of raising their dividend. The lowest of their...