New Position: DIS

There was some cash on the sidelines after unwinding a couple of October positions, so I decided to put it to work.  I bought shares and sold covered calls in DIS and WFC – I’ll post the results of these transactions today and tomorrow. 

I’ve held DIS in the Rescue My IRA account before, and it has been profitable for me.  This stock pays an annual dividend, and I figure that as long as the economy is trundling along in a growth mode, it should hold its own through the ex-dividend date in December, which is the contract I selected.  I anticipate that the stock will probably go up in value as the annual dividend date approaches, and that my shares will be called away.

The call premiums for these two positions puts the account in the black for the month on a cash flow basis – meanwhile, the market has surprisingly taken care of itself, and the account value is up a bit as well.  I’ll put those results together next week.

Here’s the analysis:

DIS

Transactions

10/21/2013 Bought 200 shares at average share price $67.56 (total $13,511.00)
10/21/2013 Sold 2 DIS Dec 2013 $70.00 for a net of $186.48

Net Profit:

1) Options Income:  = $186.48
2) Dividend Income: Ex-date is Dec, dividend is $0.75 ($150.00 for 200 shares)
3) Capital Appreciation if assigned at $70.00:  $471.89

Total Net Profit if Assigned and dividend collected:  $808.37
Absolute Return on Investment: ($808.37/$13,511.00) = 5.98%
Annualized Return if Assigned (60 days):  5.98%*(365/60) = 36.40%

For sensitivity analysis, without the dividend payment, the return is $658.37, which works out to a 4.87% absolute return, or 29.64% annualized.