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%)
No comments:
Post a Comment