Saturday, December 22, 2012

Roll-out and Roll-up for a Triple Play: SWK

My SWK position was subject to a Dec $72.50 covered call, and I was pretty comfortable with the thought of having the shares called on 12/21/2012 if the cards had fallen that way.  But the bad news about the fiscal cliff meant the market took a hit, and I grabbed the opportunity to roll out and up the shares.  I sold a Jan 75 contract at a rate that was basically a wash, but created the opportunity for a stock gain, which I wouldn’t have achieved if the stock were sold at $72.50.

The stock went ex-dividend earlier this month, and of course I’ve collected covered calls premiums on it since buying it in April.  My absolute return is 12%, meeting my goals, but annualized that is a 16.78% return.  I’m pretty comfortable with that.

The analysis below is based on the assumption that the position will be called away in January at the strike price of $75.  I’ll keep you posted…here is the analysis:


April 2012 Bought 100 shares at a price of $72.92, total position basis $7,291.50 (includes commission)
At current strike of $75, would sell the shares at a net of $7,482.82, net of fees
Total stock gain:  $191.32

Total options income:  $574.71

Total dividends collected:  $139.00

Net Profit:
1) Stock gains:  $191.32
2) Options income:  $574.71
3) Dividend Income: $139.00

Total Net Profit after Assignment:  $905.03
Absolute Return on Investment: ($905.03/$
7,291.50) = 12.41%
Annualized Return (270 days):  12.41%*(365/270) = 16.78%

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