Yesterday I sold another call option on some of my shares of HAL, my ESPP shares. I'm currently way overweight my employer's stock. I have just over 184 shares from the first purchase that went through that has already reached LTCG treatment so I'm trying to collect some premium. I now have an option on HAL expiring in April 2013 and July 2013.
I sold 1 April 20, 2013 call option with a $39 strike price. By selling the call option I'm selling the right to buy 100 shares of HAL at $39. In exchange for selling my right to do with the shares as I please, I was paid the premium in advance. I can use that cash now to use as I please. I received $2.54 per share in premium or $254 less commission taking my final premium received to $245.25.
If HAL is trading below $39 on April 20th, the option will expire worthless I'll get to keep the full premium of $245.25 and can then sell the shares as I please or sell other another call option. The $245.25 represents a 6.29% return through expiration which equates to a 28.69% annualized return.
If HAL is trading above $39 on April 20th, the option will most likely be executed. In this situation, my effective sale price becomes $39.00 + $2.4525 = $41.4525. I would have also received 1 dividend payment of $0.09 further increasing the sale price to $41.5425 to calculate my return during the option. My original cost basis for these shares is $29.334 and the execution would represent a 41.62% return.
I decided to try and be a little more aggressive on the option premium because I need to start unloading some shares anyways. I felt that this gives me a good combination of further upside if it's executed and option premium if it expires. Should this option expire then I will look to sell another option and most likely move the strike price lower since I need to start shifting these funds into other investments.
My option summary page has been updated to reflect this trade.