Friday, June 27, 2014

Called Away on the Ex-date: WIN

Earlier this week, I had finally achieved what I regard as an optimal balance between investments in stock positions and cash reserves just now – about 20% of the Rescue My IRA account was held in cash, and there were 15 stock positions.  That arrangement changed yesterday when my WIN position was called early on the stock’s ex-dividend date.

I added this position in the spring with the goal of adding a high-dividend stock (at the time, the calculated dividend yield on WIN was over 12%) that I could sell covered calls against to add to the returns.  I bought 1,000 shares a few days before the March ex-dividend date, but 100 shares were called away at that time, leaving me with 900 shares.  I rolled these out to a $8 May expiration covered call, and then rolled them up and out to a $9 November contract.

As usually happens, I traded away the cash I’d earned on covered calls for the promise of downstream stock gains, but I also figured I would collect at least one more dividend check before the shares were called.  So, overall, the position would meet my objective of a 12% return.

With the shares all called away at $9 yesterday, I have the capital back almost 150 days early, and although I won’t get those fat dividend checks, I did earn a nice return of nearly 7% on this trade during a 105 day holding period.  That works out to better than 24% annualized – it might just turn out to be one of my best trades so far this year based on that metric!

I guess I will get to work early next week on finding a new position to replace WIN. In the meantime, here is the final analysis of the WIN trade, net of commissions and fees:


Bought 1,000 shares in at an average price of $8.12, total position basis $8,117.00
Early calls on 100 shares and then 900 shares, sold for a net of $8,874.00. 
Total stock gain:  $757.00

Total options income:   -$392.01 (When I rolled the stock up from an $8 to $9 covered call, I traded some of the option premium for additional stock gains in this trade)

Total dividends collected:  $175.00 – I collected one payment on 9 lots of the stock

Net Profit:
Total Net Profit after early call:  $539.99
Absolute Return on Investment: ($539.99/$8,117.00) = 6.65%
Annualized Return (105 days):  6.65%*(365/105) = 23.13%

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