Monday, July 22, 2013

Rolling AFL Up and Out

My August AFL position, with a $55 strike price, was deep in the money, and there were a couple of opportunities this morning to go ahead and unwind it, as I have been doing in some of these cases recently.  The opportunities to do it without any out of pocket were fleeting, and I needed to move on to something else, so I decided to consider a roll-out. 

AFL is a five-star S&P stock, which suggests that more appreciation can be expected.  I decided to postpone the moderate gains due at $55 in August, and make a play for two dividend payments (ex-dates of August and November), along with a roll-out and roll-up to $60 Nov 2013 calls, which would increase my stock gains - at the cost of the option premium income this position had earned. 

Doing so pushed my holding period out to 300 days, but the position is still due to make an absolute return of over 15%, which exceeds my goals for Rescue My IRA, and an annualized return of 19%.  These returns are increased from the previous plan for this position, where the calculated yields were 10.46% and 18.19%, respectively.   

Here’s the analysis of the roll-up and out.


This is a 200 share position that I established with two 100 share purchases.  The share basis is $51.62, and as of this trade, the current contract is a $60 November 2013. 

Total option premiums:  -$288.45 (due to the cost of buying to close the Aug $55)
Total dividend payments (counting ex-dates through the contract term):  $245.00
Total stock gain at $60:  $1,658.59
Total, absolute gain on the position:  $1,615.44
Total, absolute return percentage ($1,615.44/$10,324.00):  15.65%

Annualized total return percentage (held 300 days):  19.04%

No comments:

Post a Comment