New Positions: BA and COP

Since I had a lot of cash on the sidelines, I thought I might wait for the market to pull back before putting it back to work.  After thinking about it for a day or two, it occurred to me that there were some sectors that aren’t booming in this market just yet, so I looked at underperforming Dow stocks for some leads – I chose BA, and after checking out XOM, fell back on COP, which I’ve had a good experience with in the past. 

Having so many positions set up to expire in September kept me busy and interested in posting my trades, so I’m going to try and set the account up so that there are always at least four contracts coming up each month.  That said, both of these new trades are October covered calls.

Here are summaries of the position plans for each of the two new positions, net of commissions and fees.

BA

Transactions

Bought 100 shares at average share price $129.37 (total $12,937.00)
Sold $130 Oct 2014 covered calls

Net Profit:

1) Options Income:  = $157.74
2) Dividend Income (no ex-dividend during contract): $0.00
3) Capital Appreciation if assigned at $130.00:  $45.00

Total Net Profit if assigned:  $202.74
Absolute Return on Investment: ($202.74/$12,937.00) = 1.57%
Annualized Return if Assigned and Dividend Collected (30 days):  1.57%*(365/30) = 19.07%

COP

Transactions

Bought 100 shares at share price $80.51 (total $8,050.99)
Sold $80 Oct 2014 covered call

Net Profit:

1) Options Income:  = $149.74
2) Dividend Income (October ex-dividend): $73.00
3) Capital Appreciation if assigned at $80.00:  -$68.99
Total Net Profit if assigned and dividend collected:  $153.75
Absolute Return on Investment: ($153.75/$8,050.99) = 1.91%
Annualized Return if Assigned and Dividend Collected (30 days):  1.91%*(365/30) = 23.23%

Note:  I sold an ITM call on the COP shares, so it’s possible the shares will be called away on the ex-dividend date in early October.  If that happens, the absolute return will be reduced, but so will the holding period, and results will be as follows:  net gain is $80.75, absolute return is 1.00%, annualized return is 12.20% - so the trade will still meet my goal of a 12% annualized return…just barely.