Saturday, January 11, 2014
Rolling Out KO
Last week I rolled out the KO position from January to February, which I have held since the summer of 2013. I started by selling $41 strikes, but the current covered call contract is $40. The stock was in the money at this level by the end of the week.
This roll-out brought the KO position in line with the Rescue My IRA goals for annualized returns of 12%; however, to realize this return I will have to hold it until the February contract is called away and collect a dividend. It’s probably more likely that the position will make a little less than my goal for it, since it may be called at the ex-dividend date – but if that happens, KO will deliver an overall positive return anyway.
Here’s the analysis of the positions, net of fees and commissions and assuming I collect the dividend.
The KO position consists of 400 shares, bought in lots of 300 and 100. My total basis is $16,142.96, or $40.36 per share. I began selling $41 strikes, but have been selling at $40 since November and rolling them monthly.
Total covered call premiums: $609.43
Total dividend payments (including the forecast February ex-dividend): $336.00
Total stock gain at $40: -$160.07
Total, absolute gain on the position: $785.36
Total, absolute return percentage ($785.36/$16,142.96): 6.46%
Annualized total return percentage (held approx 210 days): 11.23%