Like many of my generational colleagues, the baby boomers, I've found that my best intentions about saving for retirement aren't always meeting the mark. In 2011, I took some old 401(k) accounts and combined them into a self-directed IRA with Scottrade, and established a strategy of using covered calls to stabilize and enhance my returns. Rescue My IRA chronicles the progress of my IRA rescue using this approach.
Friday, August 9, 2013
Once a position reaches expiration month, if
it is in the money, sometimes the option’s delta reaches 1.00. When that happens, the value of the option
changes in step with the value of the underlying stock, and it is a good time
to consider unwinding the position. This
process involves buying to close the option and selling the stock at the
In the case of my Scottrade account, I will
usually make a little more cash than I would if I waited until expiration. Part of this extra return is generated
because the sell commission on an assigned position is about $18.00, while the
commission on the option and stock trade totals about $14.00. There is sometimes a little extra return in
the stock price during the time lag between closing the option and selling the
stock also – but I haven’t found that to be predictable yet.
The main opportunity is from being able to
generate new covered call premiums and stock gains from a new position opened
up two to three weeks earlier than you would have been able to, had you waited.
That’s been the reason I’ve unwound
positions over the last two or three months, and it is the case with my WIN
I’ll report two “unwind” transactions today –
one for the 500 share position I had in Rescue My IRA, and one for the 300 share
position I had in my conventional account.
The second position was established a few days after the Rescue My IRA
one, and the returns were just a little less – but both positions worked out
very well for me. I might just take
another look at WIN next month, as the next ex-dividend date approaches.
Here’s the analysis – net of fees and
commissions, of course.
WIN (Rescue My IRA position)
Bought 500 shares at
an average price of $7.92, total position basis $3,962.00