After being an avid reader of Seeking Alpha for many years and also an admirer of many of the wonderful SA authors with their informative articles, I decided to take a shot at writing an SA article about my personal investment decisions.
By way of introduction, I am retired from the investment world after working for a major financial firm for my entire career. After years of exploring and trying different portfolio strategies, I have decided to utilize a strategy what I call a "double income portfolio". My primary goal is earning income in my portfolios and this is how I do it.
The double income strategy is simply buying a blue chip stock that pays a good, steady dividend and then sell covered calls on that stock position. By collecting the dividend and the premium on the covered call, I receive two incomes on one stock position.
KO needs no company introduction. As a double income stock candidate, KO fits my needs very well: blue chip, good solid dividend of 3.2%, has good option premiums, solid and well known company that has been around for years and will likely be around for many years to come.
Here was my current position on KO:
I am long the KO common stock at $37 in my IRA
On Feb 10, 2015, I had sold the May 15, 2015 $40 calls for $2.80 a contract
KO will go ex-dividend on June 11, 2015 and will pay .33/share
KO currently trading for $40.50 as of May 6, 2015.
My executed strategy and reasoning:
With a little over a week until expiry, it appears to me that KO will hold above the $40 strike and if that happens, my common will be assigned and the stock sold out of my account at $40/share - if I do nothing. However, my goal is to keep the common stock, collect the dividend, and earn some extra income by rolling my May option to a future month. After scanning the $40 calls into the future, the August contract paid a decent premium without utilizing a lot of time. So-
My 5/6/2015 Trade Report:
Bought to close May 15, 2015 $40 calls at .75
Sold to open August 21, 2015 $40 calls at 1.50
Net gain: .75 per contract
By rolling the calls from May to August, I collected a small profit on a position whereas if I took no action and the stock remained above $40 next week, the stock would be assigned. The stock has been in a trading range and I expect it to stay within the high 30s and low 40s. To complete the double income strategy on KO, I will revisit KO before it goes ex-div on June 11 to see where it is trading at and take action if necessary. I will save that for another article.
This is my actual strategy and trade. It is not a stock recommendation and I do not recommend investments nor give investment advice. I am long KO. I have covered calls on KO. I drink Coke Zero and Diet Coke and sometimes Diet Cherry Coke.
Disclosure: The author is long KO.