|Target Corporation (TGT), Halliburton Company (HAL) & Visa, Inc. (V) Options Activity|
Target Corporation (TGT) - Rolling a Covered Call
On Wednesday, Target Corporation (TGT) released their latest earnings report and while I though the results were kind of blah Mr. Market loved it sending shares higher by over 7%. In one day. Normally that wouldn't be an issue, but when you have an open covered call option expiring in about a week that doesn't bode well.
Prior to that big jump higher the call option was still out of the money, but not anymore. On October 14th I sold a covered call option on Target with a $74 strike price. At the time the share price was just over $68 and the strike price represented over an 8% increase before the call would move in the money.
That's a risk with writing covered calls and I was left with a few choices. I could do nothing and likely lose the shares come expiration date assuming the share price doesn't fall back below $74 to move back out of the money. The other choice was to channel my inner Ludacris.
I decided that instead of doing nothing I would roll my call option out and up. This move allowed me to gain more option premium while also simultaneously moving the strike price higher. Unfortunately that was only possible by moving farther out on the calendar.
To roll out a covered call option that requires you to buy back the original call option, likely at a loss, and then selling another call option.
Let's look at the trades since there's been a lot of moving parts in order to keep these shares.
|Target Corporation (TGT) Rolling Out and Up of Covered Call|
I could have just called it a day there and been done with it; however, I wanted to try and recapture some of that "lost" premium and sold to open another call on Target at a later expiration and a higher strike price.
I'm not all that excited about this trade because even after rolling up/out the call option I only gained $30 of net premium compared to the call I had to buy back. One more downside to this is how far out I had to go on the calendar to do that. I pushed this trade out until April of next year. Sheesh, that's a long time.
This clearly wasn't ideal, but that's the risk of selling calls which is why I much prefer selling puts instead. Looking forward this position will likely need more maintenance to generate a profit while keeping the shares.
Halliburton Company (HAL) - Buy to Close Covered Call
There was a bit more position maintenance that happened on Wednesday and oddly enough another covered call was involved. As many of you know or have figured out, I worked for Halliburton and received shares via the employee stock purchase plan (ESPP).
The ESPP was a great way to boost my income up a bit, especially when oil was booming and so was the share price. However, these are some legacy shares that I still own at a higher cost basis than the current price. The average cost basis for my entire Halliburton position is around $46.02 and due to the tax rules on ESPP shares I need to sell them for at least a 15% gain which gets me back to break-even with the discount I received when I purchased the shares.
My thought with the original covered call was to choose something that was well out of the money while not expecting any big moves higher. The strike price on the call was $49 and unfortunately the share price was trading right around $49 and the expiration date was this coming Friday.
Since the sale price wouldn't have been over $54 I had to try and find a way to around this. I decided to just buy to close this call option at a profit rather than rolling it out.
|Halliburton Company (HAL) $49 November 2016 Covered Call|
Overall it was a decent move to sell the call option. I generated extra return via the option premium and still own the underlying shares and can write another covered call to try and generate even more premium.
There's not a whole lot of call options that I'm excited about at this time so I wouldn't expect anything soon although I'll keep scouring the option chain for possibilities.
Visa, Inc. (V) - Buy to Close Put Option
Thursday brought another option that I closed, although this time it was a put option on Visa. If you remember on Monday of this week I sold to open a $77.50 strike put option on Visa expiring on December 16, 2016.
The share price of Visa sold off nearly 5% on Monday for no apparent reason which opened up the opportunity to sell a put on Visa. Normally I don't set out to write a put and close it just a few days later; however, the opportunity came for a solid gain and I went ahead and locked it in.
|Visa, Inc. (V) Buy to Close Dec 2016 $77.50 Put Option|
I normally would let the put option move further along to start eating more into the time value of the contract; however, in this case I clearly felt comfortable closing it early. While I was fine with having over $50k committed via put options in my Rollover IRA I also wouldn't mind lightening that up if I can extract at least half of the premium from a put option.
In total my options activity thus far isn't all that impressive with just a $48 gain despite multiple winning trades. Much of that is due to the Target covered call that I rolled forward. I don't account for my options activity until a position is closed or expires. Excluding Target, since technically the trade is still open via rolling the option, my total gains jump up to $372.27.
I've updated my Option Summary page to reflect this change.
Are you using options to generate additional income from your investments? Do you prefer to sell calls or puts?
Please share your thoughts below!