Monday, November 18, 2013

New Covered Call Position: MRK

Once again, I found that I had enough cash on the sidelines to set up another buy-write covered call position.  I used the same criteria for this I have in the past: 

  • S&P 500 Index standing (starts with 500 high-quality companies).
  • S&P rated four or five stocks (narrows down to about 200 companies).
  • Annual dividend of 2 to 5 percent
  • Ability to develop a position that yields $100 or more in call premium

By this time, I am down to four or five symbols that I can balance against other companies already in the portfolio.  I then screen for earnings announcements coming up (avoiding those), and ex-dividend dates in the upcoming quarter.  That’s how I ended up at MRK for the new position last week.

Here’s the analysis, or position plan, if you will – all values are net of commissions and fee: 



Bought 200 shares at average share price $47.87 (total $9,573.00)
Sold 2 MRK Dec 2013 $48 for a net of $116.48

Net Profit:

1) Options Income:  = $116.48
2) Dividend Income: Ex-date is in December, dividend is $0.48 ($48.00)
3) Capital Appreciation if assigned at $48.00: $9.89

Total Net Profit if Assigned and dividend collected:  $222.37
Absolute Return on Investment: ($222.37/$9,573.00) = 2.32%
Annualized Return if Assigned (30 days):  2.32%*(365/30) = 28.26%

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