Sunday, May 12, 2013

May Contract Deltas: CSX, DOW, F, GLW

Looking at the four May covered call positions that I currently have in the Rescue My IRA account, all four of them seem highly likely to be called away next Friday when the May options expire.  They are far enough in the money, in fact, that they would likely withstand some turbulence. 

Here are the four positions: 

  • CSX, May $22.50 contract, Friday’s close at $25.43, delta 1.00
  • DOW, May $33 contract, Friday’s close at $34.46, delta 1.00
  • F, May $13 contract, Friday’s close at $14.11, delta 1.00
  • GLW, May $13 contract, Friday’s close at $15.10, delta 1.00

As I’ve mentioned in past posts, I like to use the delta as a probability metric as expiration day approaches.  In this case, all four of the stocks are significantly up from my strike prices, so I expect most of these shares to be assigned next Friday.

If that happens, I’ll be selling off two of my longest held positions in CSX and GLW – I’ve had each of these for more than a year and a half.  They’ve been solid performers.  Even though I will take a small loss on the share price for GLW, both positions have met my goal of a 12% annualized return.  My absolute return for CSX is 20%, and for GLW, it is 17%.

Even with the small loss on GLW, I stand to recognize $249 in share gains if the stocks are called away, and I will have somewhere around $35K in proceeds to reinvest.  That’s going to be a little bit of a challenge, I think – my sense of things is that the old bon mot, “Sell in May and go away,” should be the rule of thumb for small-time investors like myself this year.   

I’ll revisit these shares next week after expiration day.  Until then, happy trading!

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