Recent Transaction
With today being expiration Friday, I figured we'd revisit the call options that I sold on 200 shares of Bank of America back in mid-August. I originally performed a buy-write of 200 shares which involves purchasing the shares and simultaneously selling a call option per 100 shares purchased. The advantage to doing this is that you save on the commission by only having to pay once instead of one for the share purchase and one for the option sale. Barring over a 15% pullback in tomorrow's trading, the call options should be executed.
Unfortunately, I picked one of the worst times to execute the buy-write since BAC's share price went on a pretty steady increase after I sold the call options, especially once the calendar rolled to September. Between September 5th and September 14th the share price increased over 20% eroding the chance of a the options simply expiring. Since then the share price has pulled back to under $9 for about a week but has been over $9 for a majority of the time the option was open. In hindsight, I should have bought to close the call options after the pullback in late September but hindsight is 20/20.
When I originally sold the call options my hope was that the share price would languish around the $8 mark since that was the strike price I sold my calls at. This would have allowed me to continue writing more call options on the shares to lower my cost basis and increase my income from the shares. While it didn't quite worked out as well as I had hoped, it still met my requirements as far as return. I purchased the 200 shares for $8.10 per share with an $8.14 cost basis after commission. From the 2 call options, I received a $0.50 per contract, $50 per contract, less commission of $1.57. This left me with an option premium of $98.43. In order to calculate my return you take the strike price and add in the option premium per share plus dividends received, $8.00 + $98.43 / 200 + $0.01 = $8.50. My original cost basis on the shares was $8.14 giving a total profit of $8.50 - $8.14 = $0.36 per share. My percentage gain is calculated as $0.36 / $8.14 = 4.45%. Not bad for the 64 days that the option was open. This is equivalent to a 25.37% annualized return.
I still think that Bank of America will be a solid long-term investment and will be looking for chances to re-enter to build my position back to it's current ~360 level. Until the time comes I'll be waiting and hopefully getting to invest my new capital soon in some solid DG stocks.
*I forgot to factor in the sell commission and brokerage fee which ended up being $7.95 + $0.04 = $7.99. This changed my return to a 4.09% return that is equivalent to a 23.30% annualized return.
Unfortunately, I picked one of the worst times to execute the buy-write since BAC's share price went on a pretty steady increase after I sold the call options, especially once the calendar rolled to September. Between September 5th and September 14th the share price increased over 20% eroding the chance of a the options simply expiring. Since then the share price has pulled back to under $9 for about a week but has been over $9 for a majority of the time the option was open. In hindsight, I should have bought to close the call options after the pullback in late September but hindsight is 20/20.
When I originally sold the call options my hope was that the share price would languish around the $8 mark since that was the strike price I sold my calls at. This would have allowed me to continue writing more call options on the shares to lower my cost basis and increase my income from the shares. While it didn't quite worked out as well as I had hoped, it still met my requirements as far as return. I purchased the 200 shares for $8.10 per share with an $8.14 cost basis after commission. From the 2 call options, I received a $0.50 per contract, $50 per contract, less commission of $1.57. This left me with an option premium of $98.43. In order to calculate my return you take the strike price and add in the option premium per share plus dividends received, $8.00 + $98.43 / 200 + $0.01 = $8.50. My original cost basis on the shares was $8.14 giving a total profit of $8.50 - $8.14 = $0.36 per share. My percentage gain is calculated as $0.36 / $8.14 = 4.45%. Not bad for the 64 days that the option was open. This is equivalent to a 25.37% annualized return.
I still think that Bank of America will be a solid long-term investment and will be looking for chances to re-enter to build my position back to it's current ~360 level. Until the time comes I'll be waiting and hopefully getting to invest my new capital soon in some solid DG stocks.
*I forgot to factor in the sell commission and brokerage fee which ended up being $7.95 + $0.04 = $7.99. This changed my return to a 4.09% return that is equivalent to a 23.30% annualized return.
Banks have been on a little bit of a run recently, at least you made a decent profit. The one bank I own, BBVA, has gone from about 5.5 to 8.50 in a 3-month period.
ReplyDeleteWhat brokerage firm do you use by the way because I get charged an additional fee when I get shares assigned do to selling puts or shares called away do to selling calls.
Now I'm wishing I hadn't sold the call options but there will still be more opportunities to get in for a great price on BAC I'm sure. I was surprised to see that BAC was essentially flat on a brutal day with the DOW dropping 1.52% and the S&P 500 shedding 1.66%. I'm going to have to start looking into some put options once I get some more cash ready.
DeleteI forgot about the exercise fee, the last time I had an option exercised though the additional fee was only $0.03 or so. It'll eat into my returns but I still got over a 10% annualized return after all fees which is what I look for.