Diversion

Friday, May 17, 2013

Rolling Up CSCO


Earlier this month I rolled out the CSCO position, where I had a $21 strike price. It had a bump up almost $2 per share on Thursday, so I started toying with the idea of a roll up.  It continued to climb on Friday, so I rolled up to a $24 strike with a July expiry.

This is an aggressive trade for me – generally roll ups mean that you are trading historic revenue from option premiums for share gains.  You have to be committed to the trade, in other words.  So I slept on this one, and then I ran the numbers and found that I could increase my annualized return from 24 percent to 28 percent – that was good enough for me.

I don't have a rule in my trading plan to guide me on these roll ups.  I have found pulling the trigger on them a little difficult in the past, but I have done okay on these trades for the most part.  So I think I will make a little decision rule I can follow for future opportunities.

Here’s the analysis of the CSCO position’s current situation.

CSCO

The CSCO position consists of 500 shares, bought in a few lots.  My basis is $19.06 per share, and the stock is trading at $24.  I was selling $21 strikes and rolling them out monthly; this transaction rolled up the July $21 to a July $24 contract.    

Total option premiums:  -$928.93
Total dividend payments (including the forecast July ex-dividend):  $252.00
Total stock gain at $24:  $2,450.71
Total, absolute gain on the position:  $1,773.78
Total, absolute return percentage ($1,773.78/$9,532.18):  23.36% (increase from 19.62%)
Annualized total return percentage (held approx 300 days):  28.42% (increase from 23.88%)

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