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Fear & Greed Trader
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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Call Writing Strategy - Part 4 - Adding RIG 8 comments
    Aug 12, 2013 3:57 PM | about stocks: RIG, EBAY, LAZ, LVS

    With the August options expiring this Friday, I recently reviewed the current portfolio and started to look for an opportunity to replace the (LVS) position.

    The previous chapter can been seen here as a review on how the portfolio was assembled.

    http://seekingalpha.com/instablog/706857-fear-greedtrader/2053582-ebay-update-call-writing-option-strategies-part-3

    LVS was added on July 5th and the Aug 52.50 calls were sold. With the present price of $56.52 , unless we experience a severe drop in price, the shares will be called away. If that does in fact take place we would have captured the 4.7% gain in a 6 week period.

    I decided to add (RIG) to the portfolio. ( I currently own as a LT holding, this purchase was in addition to those shares ) It currently has a 4.7% yield and we will capture a dividend payment in September by buying the shares today & selling the Nov call option . The trade breaks down as follows - BOT RIG @ $47.54 and sold the Nov 48 call @ 1.95.

    The chart below shows the new addition, along with the expected gain of 7.4% if called and 5.2% if we still own the shares after Nov 16th.

    If the shares are not called - I own a company yielding around 5% with a net cost of $45.59. In my view, there is very little risk associated with this position , no matter how the trade plays out.

    (click to enlarge)

    Disclosure: I am long RIG, EBAY, LAZ, LVS.

    Additional disclosure: Stocks4Income@usa.com

    Themes: Call Writing , Income, Yield Stocks: RIG, EBAY, LAZ, LVS
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Comments (8)
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  • Are you double counting the dividend income in both the "Call Income" column and the "blank" "If Called" column?
    25 Aug 2013, 09:10 PM Reply Like
  • Author’s reply » Hi Hooter,

     

    I dont think so , the 1,755 " If called" gain should come from,
    the 1245 call income + the 280 div pmt . in Sept. + the diff in purch price(47.54) Vs called price (48) .46 per share x 500 = 230
    1245
    280
    230

     

    1755..

     

    Don't think it's overstated.. .. Thanks for picking up the "blank" if called column mistake

     

    :)
    25 Aug 2013, 09:24 PM Reply Like
  • I understand the $1755, it's the "call income" that looks too high.

     

    $1.95 x 500 = $975 ??? not $1245

     

    Where does the extra $270 come from?
    16 Sep 2013, 08:37 PM Reply Like
  • Author’s reply » 1.95 * 500 - $10 commission + the $280 dividend that will be added to the account during the holding period = $1245.
    16 Sep 2013, 09:41 PM Reply Like
  • OK, I guess it is the $1755 "If Called" number that looks too high. It looks like you are counting the $280 dividend a 2nd time.

     

    Shouldn't "If Called" equal:
    Call premium- $975
    Dividend- 280
    Gain on sale- 230
    Minus 2 comms- (20)

     

    "If Called" = $1465 ?????
    20 Sep 2013, 01:35 AM Reply Like
  • One last try.
    The "Call Income" = $1245 that includes the Call Premium + the Dividend(1).

     

    The "If Called" = $1755 = $1245(call inc) + $280(Div2) + $230(Cap Gain)
    or said another way
    = Call Premium + Dividend(1) + Dividend(2) + Cap Gain
    Why the 2nd dividend?????
    28 Sep 2013, 09:05 AM Reply Like
  • Author’s reply » Hooter
    i agree the "if called" has been changed to 1465, please check the latest entry in this series,,
    http://seekingalpha.co...

     

    The spreadsheet was changed in that post to reflect that error..
    28 Sep 2013, 09:19 AM Reply Like
  • Author’s reply » Hooter,

     

    U are correct and I adjusted the spreadsheet accordingly .. My error..

     

    Thanks for picking that up..

     

    I'l be updating that strategy this weekend as two positions wil be called away ..
    20 Sep 2013, 09:30 AM Reply Like
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