Saturday, January 19, 2013

Recent Transaction

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.

7 comments:

  1. And of course I could have received an extra $0.22 in premium had I waited til close. But I wasn't trying to maximize the premium yet, just collect something along the way. If this option expires then I'll start selling more aggressive calls to collect more in premium.

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    1. I like this move. You are making a nice profit, and adding more diversification and probably more income with your purchases from these proceeds.

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    2. That's kind of how I felt. I'll be glad when I can actually start selling them off to start investing the proceeds into DG stocks to build up my passive income.

      Thanks for stopping by!

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  2. Nice move. I noticed a while back that you had a lot of HAL relative to other positions and was wondering why - does your employer give you a discount of some type - perhaps options? I recently joined the world of option trading and sold my very first call.

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    1. ADY,

      I get a 15% discount on the lowest price from the first and last trading day of the period. It used to be 6 months but starting this year it's quarterly. It's just a straight stock purchase plan. They withhold the % I want them to on an after-tax basis and then purchase the stock for me at the end of the period.

      I really like options, especially puts to at least get paid while you wait for setting what is essentially a limit order. I'm not a huge fan of calls because you risk losing the shares, although for my HAL I have no problem with them since my portfolio already has too much exposure to them plus it's my income source.

      I'm looking forward to being able to sell off the shares and start investing the capital back into DG stocks, although the way the market is right now I think it'll probably go towards selling puts. There's not nearly as many bargains as there were just a few weeks back.

      Thanks for stopping by!

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  3. Great Strategy! I like using covered calls to collect premium. The great thing about this trade is if your shares aren't called away you can turn around and sell more!

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    1. Marvin,

      I really like using covered calls on positions that I want to exit. I plan on continually sell calls on my HAL position until they get called away and get more aggressive with the strikes as time goes on. I need to double check how the taxes work on ESPP shares because I originally thought it was one way but then reading it again made me think it's another. Time to shoot an email to my CPA aunt.

      Thanks for stopping by!

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