Yesterday I sold a call option on some of my shares of HAL, ESPP shares. In early January, the latest purchase went through adding almost 200 more shares to my position. As to be expected I'm way overweight my employer's stock so I'm trying to set it up to start selling some off. I still go back and forth on whether it's better to sell as soon as it turns to LTCG or not, I'm leaning that way for the moment. Anyways, on to the trade.
I sold 1 call option with a $40 strike price. The option expires on July 20, 2013 which will put me at the qualifying disposition and LTCG treatment which is why I chose that option date. In exchange for selling my right to the shares, I received $1.36 per share in premium for a total of $136 less the $8 in commission bringing the total premium received to $128. This will give me a 3.20% return which is annualized to 6.38% through expiration.
Over the length of the option I'll also receive 2 dividend payments of $9.00 each bringing in another $18, a 0.61% return. The final part of the return comes from the strike price less my cost basis, $40 - $29.33 = $10.66 per share for a 36.36% return. In total, if HAL shares are trading higher than $40 and the option is executed I'll have a total return of 40.17%.
I wasn't looking to maximize the option premium but figured I'd settle for a decent return. A 3.20% return on shares that would be sitting in my account anyways is good enough for me. I hope that the shares are called away at the end of the option so I can have some of the ESPP shares sold off and can then reinvest the proceeds in dividend growth stocks.
If the option does expire, then the premium will be added to my passive income for the year. This will help out on my goal of reaching $2,750 in dividend and option income in 2013.
My option summary page has been updated to reflect this trade.