Thursday, January 10, 2013

Rolling CAT Up and Out

I took advantage of the rally during the first week of January 2013 to make some adjustments to positions – especially those that had January expirations, as my 100 share position in CAT did.  I first bumped up to a $92.50 strike, and then to a $95 – a two-step roll-out is not as efficient as it might have been, but if the position is called at this price I will have completed a hat trick and exceeded my goal of 12% return on invested capital.

I'll put up two more posts about the early January trades over the next week.

Here’s the analysis of the CAT position.


The CAT position consists of 100 shares.  My basis is $87.17 per share, and the stock is trading near $95.  I sold a January $90 covered call before rolling to a February $92.50 and then a May $95. 

Total option premiums:  $556.20
Total dividend payments (including the forecast March ex-dividend):  $156.00
Total stock gain at $95.00:  $765.83
Total, absolute gain on the position:  $1,478.03
Total, absolute return percentage ($1,478.03/$8,716.99):  16.96%
Annualized total return percentage (held approx 240 days):  25.79%

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