I sold the January 18, 2014 $46 Call for $3.10 on May 14, 2013 for $3.10. After commission and fees I received $301.26 in premium to my account. I don't typically aim to sell this far out but it gives me a chance to buy it back on weakness on the stock and get a bit more premium to go with the larger capital appreciation from a out of the money call option. This call can work out one of three ways.
(1) If HAL is trading below $46 on expiration, then I'll get to keep the full premium as profit. The return is calculated as $301.26 / $4,600 = 6.55% which is annualized to a 9.60% return.
(2) If HAL is trading above $46 on expiration, then I'll be forced to sell 100 shares of HAL for $46 each. However, I get to add the premium to the sale price so my final sale price would be $46 + $301.26 / 100 - $7.95 / 100 = $48.93. Since I purchased these shares through the ESPP program at work and received a discount, my cost basis is $24.19. So this would be a smooth 102% gain. I'll also receive 3 more dividend payments $0.125 each based on their historical record dates. This would be another $37.50 in profit.
(3) If HAL trades lower than $46 between no and expiration, I can buy to close the call option for a profit less than in case 1.
I recently devised a strategy where I'll try and maximize the option premium by trading opening and closing call option positions while waiting for the next set of shares to reach long-term capital gains treatment. And then will sell lower strike price calls to try and get the shares called away. Since I receive a pretty hefty 15% discount on the shares and they now hit my account every 3 months I think this strategy will be a great way to maximize option income and still diversify out of my ESPP holdings.
Currently I have 3 calls that are set to expire in July and all three are in the money by a good margin. This is the pitfall with selling call options. If the share price makes a big move up you can lose out on some of the upside. I'm not too worried about that because as I mentioned these are ESPP shares and I need to diversify out of them anyways.
If all 4 of my calls are executed, my sale prices will be $41.20, $41.04, $43.13, and $48.93.
I've updated my Option Summary page to reflect this change.