Called Away Early and a Roll-out: ITW

After the ugly experience with my HPQ position earlier in the month - and the relief at having it called away, even at a loss - I have been watching the other two positions that had ex-dividend dates this month and that I’d set up with December expiries:  ITW and SWK.  The SWK position has a $72.50 strike, and the stock is near-the-money – having floated up into and out of in-the-money status over the course of the last two months.  In the case of ITW, as I was preparing my monthly forecast, the stock was in-the-money already, given the $60.00 strike I’d set for that contract.

I expected the ITW shares to be called last Friday when they went ex-dividend, and sure enough I had the email from Scottrade on Friday morning – except that only 100 shares of the 200 share position had been called away.  

The share price was adjusted and then dropped some more after the dividend calculation, so I decided to close out the remaining December option and roll the remaining 100 shares out to January.  Even though I will now pay a commission on the second transaction, I was able to add about $50 net to the total return on this position, in addition to the $38 in dividends I stand to collect for one lot of the shares.

In the analysis that follows, the calculations for the position assume being called away in January – and I have exceeded my goal of a 12 percent annualized return, using the full original basis.  If the position isn’t called away, of course I will have an adjustment post up very soon.  

Until then, here is the analysis:

ITW

Shares:

March 2012 Bought 200 shares at an average price of $56.37, total position basis $11,274.00

12/14/2012 Sold on assignment 100 shares at $5,982.89, average share price $59.83 – the calculations below assume that I will have a similar transaction next month.

Total stock gain:  $691.78

Options:

Total options income:  $411.86

Dividend:

Total dividends collected:  $262.00

Net Profit:
1) Stock gains:  $691.78

2) Options income:  $411.86

3) Dividend Income: $262.00

Total Net Profit after Assignment:  $1,365.64
Absolute Return on Investment: ($1,365.64/$11,274.00) = 12.11%
Annualized Return (330 days):  12.11%*(365/330) = 13.40%