Tuesday, October 25, 2011

A Third Trade: GLW and JAN 2012 15

A quick post on the third trade I have going on, involving 200 shares of GLW and the January 2015 15 call.

But first, a few notes about this blog:

  • I am still in a steep part of the learning curve, and my research is just beginning to touch on the nature of the risks that the covered call strategy involves. So over the next month or so, I'll probably write up some "Covered Calls 101" posts.
  • As a result of the research, I am finding that I have a generally bullish outlook on the markets.  My trades generally have been designed under the assumption that my contracts will be assigned with a capital gain.  As I learn more about the risks, I may revise how these are reported.
  • Some of the other covered call blogs post much less often than I have or probably will.  RescueMyIRA will fall into its own rhythm, no doubt, but since the options calendar has an inherent cycle, I expect my posts to loosely follow that...there'll be strategy posts, trade results, and monthly results that work around significant dates on the trading calendar.
  • Lastly, one of the bloggers has a trading philosophy and plan - I think that is a good idea, and I plan to develop one.  He has made 12 adjustments to that plan over the 5+ years he's been doing this...I would expect my experience to be similar.
Now for the GLW trade.

I bought 200 shares at $13.60 last week, then sold 2 JAN 2012 15 contracts at .60 each.  There's a dividend with a November ex-date of .075 per share. The calculation of anticipated return is:

Share price (200 shares plus commission):  $2,727
JAN 2012 15 calls (2) premium (net of commission and assignment fee):  $92.50
Dividend (if collected): $15.00
Capital Gain (if assigned):  $273

If I am assigned, the proceeds will range from $300 to $400, a return on the share price of 13.4% or better, mainly dependant on whether I collect the dividend.

If the calls are not assigned, the proceeds are around $125.50 (includes option premium net of commission and dividends), that is a yield of about 4.6% on the share price.  At January expiry I will revisit this scenario to determine next steps.

Onward and upward.

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