Thursday, April 11, 2013

Recent Options Transactions

On Tuesday, April 9th I sold 2 more call options on some of my shares of HAL.  If you remember from my previous post, I'm going to start a new strategy in regards to my HAL shares.  They are my employer and I acquire the shares through the ESPP program at work so I continue to receive a  pretty significant number of shares every few months.  My position in HAL is the largest by far in my portfolio and it's not really a great dividend grower, increasing the dividend every few years or so.  They are also my employer, so I'd hate to lose my source of income as well as have a good chunk of my portfolio lose it's value, hence the need for strategy to diversify.

My strategy once I get 200 of these shares called away is to be pretty aggressive with selling and then buying back call options to generate more income from the shares via option premium.  Once a new set of shares has reached long-term capital gains treatment, I'll either sell the original block outright or go the route of selling a call and let it go until expiration.  If it expires then drop the strike price down $1 and sell again and then repeat that process until the shares are called away.   With the new block of shares then becoming a trading vehicle through call options to try and maximize income until the next set of shares hits long-term capital gains treatment.  I think this strategy should prove fruitful in my quest to grow my portfolio.  Now on to the new call options.

Option 1: Sold to Open the July 2013 $39 Call option for $2.20

(1) If HAL is trading below $39 on expiration, I'll get to keep the full premium less commission costs which came to $211.26.  The return would be $211.26 / $3,900 = 5.42% annualized to 19.38%.

(2) If HAL is trading above $39 on expiration, I'll be forced to sell 100 shares for $39 each.  However, since I received the option premium my cost basis upon the sale would be $39 + $211.26 / 100 - $7.95 / 100 = $41.03, 4.94% above Tuesday's closing price.

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

Option 2: Sold to Open the July 2013 $41 Call option for $1.31

(1) If HAL is trading below $41 on expiration, I'll get to keep the full premium of $123.01 after commission and fees.  This would be a 3.00% return which is annualized to 10.74%.

(2) If HAL is trading above $41 on expiration, I'll be forced to sell 100 shares for $41 each.  As before I get to add the option premium to my cost basis giving a final cost basis of $42.15.  This would be 7.80% above Tuesday's closing price.

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

In hindsight I probably should have waited a bit longer to sell the $41 call to see if the share price would bounce back up, increasing the premium available, or sold a different expiration month.  I'm still happy with the 2 trades though because I have over 180 shares that have already reached long-term capital gains treatment and another 180 that will reach it on June 30th.  I'll be looking to buy back the $41 call option in order to implement my new strategy for my ESPP shares.

If all 3 of my open call options on HAL are executed my sale prices will be $41.03, $41.20, and $42.15 which are all well above my cost basis of $27.33.  The average sale price would represent a 51.70% return on the shares.

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

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