On Monday, I sold another call option on some of my HAL shares. I currently own just over 565 shares and will be adding around another 75-100 shares every quarter, so I need to get some of the shares off my hands. I now have 3 open call options on HAL, adding to my previous two that expire in April and July. I'm taking a bit of a gamble having the 3 options open since I only have 184 shares that have hit long-term capital gains treatment already. Although I think it's a risk worth taking since most options aren't executed early and I'll have another 182 shares hit long-term capital gains on June 30, 2013.
In order to get my cost basis for these shares, I've assumed that the April call will be executed leaving me with 84 shares from the first group and another 16 shares from the second purchase. This gives me a blended cost basis of $28.50 per share. Now on to the details. I sold a July 20, 2013 call option with a $41 strike price and received $2.77 in premium. After commission and fees I ended up receiving $268.25 to my brokerage account.
If HAL is trading below $41 on July 20th, then I will get to keep the $268.25 which represents a 6.54% return. This is annualized to a 14.39% return over the time that the option will be open. The shares will then be mine to do with as I please, which I'm leaning towards selling another call option.
If HAL is trading above $41 on July 20th, then I will be forced to sell, or have called away, 100 shares of HAL. My effective sale price will end up being the strike price plus option premium and dividends received, which works out to $41 + $2.6825 + $0.09 * 2 = $43.8625. Since my blended cost basis will be $28.50, this will be a $15.3625 profit per share, or 53.90%.
I'm essentially betting that HAL shares won't trade higher than $43.8625 on expiration. That's not a huge difference from it's current price but I think the two outcomes will work out nicely. Since I'll keep receiving more HAL shares I have no problem selling some off to reinvest in DG stocks either through direct purchase or by selling puts, depending on valuations at the time.
I've updated my Option Summary page to reflect this move.