Saturday, March 3, 2012

Roll-up and Roll-out: COP

I saw this morning that my Rescue My IRA account was credited yesterday with the $66.00 dividend on my long-term holding COP stock.  I had a position in the stock in October, but it was called away on the ex-date back then.  I quickly did the analysis after that, and took another position soon after, at a basis price of $69.88. 

Here are the five(!) covered calls contracts I have sold on COP:

70 Nov 2011
72.50 Nov 2012
72.50 Jan 2012
72.50 Mar 2012
77.50 Apr 2012

I decided to adjust the position to capture some of the capital gain in the contract.  For covered call traders, this is called a roll-up, and it usually means to pay a high-premium for the intrinsic value (stock price above the option strike price) of the stock gain, but that is partially offset by the extrinsic value of the new strike (the time value of the new contract). 

Because of the high value of the 77.50, that leaves me in negative territory on the option premiums, but that is more than offset by the dividend I received and the stock gains that will result at this price.

Here’s the rest of the story, based on the current April contract.  As always, these calculations are net of commissions and fees in my Scottrade account.


Total option premiums:  -$160.05
Total dividend payments:  $66.00
Total stock gain at $77.50:  $744.09
Total, absolute gain on the position:  $650.04
Total, absolute return percentage ($650.04/$6,987.91):  9.30%
Annualized total return percentage (held 180 days):  18.86%

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