Wednesday, April 24, 2013

Recent Option Transactions

Well yesterday I sold 2 more call options on HAL, my ESPP shares.  On Monday HAL announced earnings for 1Q 2013 and the results were quite positive and the shares in turn made a nice move up.  With HAL continuing the increase Tuesday and trading back to around $39.50 I sold to open 2 call options.  If you remember I recently devised a strategy to try and maximize option premium and continue to diversify away from my employer's stock.  Once again the patience bug, or lack of patience, struck again.  I should have sold a deeper in the money call for the second call option since it's longer dated and would offer a better nominal return if I closed it out early.  Oh well, live and learn right?
Option Trade 1: Sold to Open $39 HAL July 20, 2013 Call

I sold the call option for $2.21 and after commission/fees netted $212.26 in option premium.  This trade can work one of three ways.

(1)  If HAL is trading below $39 on July 20th, I'll get to keep the full $212.26 as profit.  This would be a 5.44% return good for a 22.57% annualized rate.

(2)  If HAL is trading above $39 on July 20th, I'll be forced to sell 100 shares of HAL for $39 each.  Since I received the option premium my sale price will be $39 + $212.26 / 100 - $7.95 / 100 = $41.04.  As I mentioned this is my employer and I acquired these shares through the generous ESPP program where I receive a 15% discount on the price at purchase.  My cost basis for these shares is $28.53 so this will be a 42.12% gain before taxes.

(3)  I can buy to close the call option for a profit less than in case 1.

Option Trade 2: Sold to Open $41 HAL October 18, 2013 Call

I went with a longer dated call option this time more just to see how it works for price volatility of the option compared to the shorter duration options I've been selling.  I sold this call option for $2.30 which netted me $221.26 in option premium.

(1)  If HAL is trading below $41 on October 19th, I'll get to keep the full $221.26 as profit for a 5.40% return annualized to 11.00%.

(2)  If HAL is trading above $41 on October 19th, I'll have to sell 100 shares for $41 each.  My cost basis on the shares most likely to be used for execution are $24.132.  The sale price will be $41 + $221.26 / 100 - $7.95 / 100 = $43.13 so I'll have a great 75.30% return on these shares.

(3) I can buy to close the call option for a profit less than in case 1.

Given the high beta for HAL and the fact that I think the market is due for a pullback of some sorts pretty soon, I should be able to close out at least one of my 3 open call options on HAL.  The 2 mentioned here and the $40 call I sold back in mid-January.  If I can ever get the patience to wait a bit on selling the calls I can probably get some extra option premium but for some reason it always eludes me when it comes to my ESPP shares.  I'm guessing it's because I know I need to diversify out of the stock so if a good enough opportunity comes along I tend to pounce.  There's no sense in waiting for the absolute best time because chances are I'd miss it anyways.

In order to keep with my strategy I'd hope to be able to have 1 of the options get executed and 2 to expire worthless or close them out early.  This way I can continue to sell more calls and reap the option premium.  At some point this year though I do need to sell off about 360 shares since another 200 will be freed up as long term capital gains on January 1.

I've updated my Option Summary and Portfolio pages to reflect these changes.

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