Wednesday, July 17, 2013

July Deltas, and Unwinding Mr. Softie

I’m going to combine a quick look at my expiration forecast for July – it happens that this Friday is expiration for two of my positions – with the analysis for my closed MSFT position, which I unwound recently when the opportunity presented itself.

As for the two positions, the first is TXT.  I have 300 shares with a July $27 covered call written against them.  As I am writing this post on Wednesday night before the Friday expiration, the delta on this option has moved up to .82 – it has climbed steadily and was at a tepid .62 yesterday.  I’ll take a small loss on the share price if this is assigned, but I collected call premiums and dividends that add up to a net annualized return of 25%...I can live with it.

The second position up for expiration this week is the weekly call I wrote against my SPY shares.  This position was in-the-money for most of the day – the strike price is $168 – but as markets closed today the price slipped below there, and the delta is around .50.  I may get to take another bite of the apple with this one, and I will enjoy that if it happens.

Finally, I need to post about unwinding the MSFT position.  I held these 400 shares for about 15 months, and the stock was downgraded by S&P during that time.  Instead of a stop loss close, as I have done in the past, I rode this one out, eventually turning a profit, albeit one that is less than my target. 

With the MSFT sale, my portfolio consists only of S&P four- or five-star rated shares, and the SPY ETF.  But I only have ten positions, less than optimal, so that will have to be addressed soon.

Here’s the analysis of the MSFT position.  

Position basis:  400 Shares, bought in two lots, basis $12,506.42, or $31.27 per share; Jul 34 unwound. 
Option Premiums:  -$1,049.67 (when unwinding, part of the trade means buying back in-the-money options, so there is a steep premium)
Dividends Collected:  $341.00
Stock Gain:  $1,658.33 (unwinding also means you recognize the current market price on the shares, which offsets the close-out option premium and should result in a slight increase in the calculated stock gain from plan)
Total:  $949.66
Absolute return 8.12%

Annualized return (410 days) 6.76%

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