On the heels of
rolling out and up the CAT position last week, I made similar adjustments to my
WAG and MSFT positions. On the basis of
improving my total returns on the shares, I’m satisfied that progress towards a
12 percent annualized return is a good goal, and that would seem to be enough
to justify these trades.
However, I am not
convinced this is an efficient way to make money. In the case of WAG traded my returns from
call premiums in for additional share gains that I won’t recognize unless the
stock is called away. The MSFT position
is more of a stock repair approach, since it has been a “dog of the dow” for
the last year.
I need to think about
the implications of this approach a bit more and consider whether I need to
make an adjustment to the trading plan – a review of that guideline is probably
overdue anyway - to help me decide how far to go when the opportunity for a roll-up presents itself. In the meantime, here’s
the analysis of these two positions.
WAG
The WAG position
consists of 300 shares. My basis is around
$34 per share, and the stock is trading near $40. I held $35 strikes for a long while until
recently rolling up to a $40 strike.
Total option
premiums: -$154.85
Total dividend
payments (through the current option contract):
$270.00
Total stock gain at $40.00: $1,861.02
Total, absolute gain
on the position: $1,976.17
Total, absolute return
percentage $1,976.17/$10,121.80): 19.52%
Annualized total
return percentage (held approx 580 days):
12.29%
MSFT
This 300 share
position has a basis of $32.51, but the stock hasn’t traded above the current
strike of $30 for some time now. Instead
of closing it out at a loss, I’ve ridden the situation out with longer-term
covered calls. At this point, even
though the strike I have written will yield a loss on the shares, the trade will
be better than breakeven if the shares are called away on the current contract.
Total option
premiums: $564.62
Total dividend
payments (through the current contract):
$360.00
Total stock gain at $30.00: -$770.54
Total, absolute gain
on the position: $154.08
Total, absolute return
percentage ($154.08/$9.753.43): 1.58%
Annualized total
return percentage (held 430 days): 1.34%
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