WAG: Taking Some Money Off the Table

Last year during the intensive travel schedule I had, I distinctly remember the day in Dallas when I established the 300 share position on WAG.  It seemed a lucrative opportunity, and now, just a bit longer than a year since then, it turns out it was.  While the stock price had its ups and downs, from managing this position in particular I learned quite a bit about this covered call adventure I’ve embarked upon.

The shares were called away yesterday on the ex-dividend date; I earned a 15.65% absolute yield on the stock.  In my final transaction, I bought to close a July 40 call and sold to open a February 38; doing this on the ex-dividend date ensured that the transaction would happen.  Also, that puts WAG into the hat trick category, having secured income on all three accounts – call premiums, dividends, and stock gains.

That exceeds my goal of earning a 12% return on these investments, so I’m satisfied with the results.  Also, since the shares are one of the S&P 3 star stocks I still have in the portfolio, I needed to divest them to better align my program with my trading plan.

A last note – WAG is one of a few positions that I rolled up to chase a higher strike price.  As I’ve come to understand this process, this is where one trades option premiums for stock gains.  It worked in this case, but I need more data to evaluate the strategy.  I have a couple more of those positions, and should be able to draw some conclusions soon.

Here’s the analysis:

WAG

Shares:

February – March 2012:  Bought 300 shares at an average price of $33.74, total position basis $10,121.80

2/13/2013 Sold on assignment 300 shares at $11,382.82, average share price $37.94

Total stock gain:  $1,261.02

Options:

Total options premiums:  $45.62 (as I mentioned above, I chased the stock gain here, exchanging options premiums for a good return on the stock price)

Dividend:

During the year plus I held the position, I collected a total of $277.50 in dividends

Net Profit:
1) Stock gains:  $1,261.02

2) Options income:  $45.62

3) Dividend Income: $277.50

Total Net Profit after Assignment:  $1,261.02 + $45.62 + $277.50 = $1,584.14
Absolute Return on Investment: ($1,584.14/$10,121.80) = 15.65%
Annualized Return: not calculated, the average holding period for the two lots was almost exactly one year, so we’ll call it 15.65%