Monday, March 5, 2012

Option Buyback?

Back in the beginning of February I sold a call option for HAL with a strike price of $42 for $1.60. The option expires on July 20th. Based on the sale if the option expired I would have earned $151.97 over about 5 months. This would have been a total return of 3.62% which translates to a 7.98% CAGR.

Lately Halliburton's share price has been struggling. A little over a week ago it was at it's YTD high and has gone down in almost a straight line since. I recently checked the price of the option and saw that it's currently around $0.80 per contract. I'm thinking of buying back the option to close it out. If I can buy it back at $0.80 I would have earned 1.58% in a little over a month which translates to a 18.61% CAGR.

I'm still weighing my options because I wouldn't necessarily mind the shares being called away to get the full $152 and get to sell my shares well above my purchase price. However I'm due to the tax implications of selling the shares early since they were bought through my ESPP I would like to the keep the shares long enough to at least get them taxed at the long term capital gains rate. Halliburton has been a pretty volatile stock since on 2/15/12 it was at $35.23, closed at $38.51 on 2/24/12, and is currently trading at $34.97. That's a 9.3% move up followed by a -9.19% all within the last 19 days.

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