Friday, November 28, 2014
Rolling up and out BA and DIS
This month I have adjusted a couple of positions in Rescue My IRA. I guess that’s a bullish move, and I can live with that. Today, I’ll post about rolling BA and DIS up and out.
I established the DIS covered call trade earlier in November – setting sights on the annual dividend payment in December. The stock has moved past my strike price with time left on the clock, the company has been on a growth curve, and no less than five friends have recently told me they are taking their families to Disney World in Orlando for a week or more this quarter. So I’m on board with a roll up on this one.
On BA, similarly – this is a stock I’ve held a few times in the past. It seems like there is a lot of macro effect in the economy that will lead this great American company to growth, so I am rolling it up.
Rescue My IRA has a few years to go before I start to use it as a source of retirement income. I feel like I have to make strategic decisions like these for time to time for the long term. Three years in, I’m not worried about mistakes so much anymore, because I know how to manage them back.
But I do feel good about these trades. Here are the details, net of commissions and fees, and assuming I hold the shares through upcoming ex-dividend dates.
This is a 100-share position established in September 2014 with a basis of $129.37 per share. I have been selling monthly $130 strikes and rolling them out, but this transaction raised the strike to $135 and rolled out to February.
Total covered call premiums: $141.21
Total dividend payments (assumes I collect February): $146.00
Total stock gain at $135: $545.00
Total, absolute gain on the position: $832.21
Total, absolute return percentage ($832.21/$12,370.00): 6.43%
Annualized total return percentage (approx 150 days if held to expiration): 15.65%
This is a 100-share position established in late October 2014 with a basis of $87.59 per share. As I mentioned above, I bought this one to set up a dividend play, since the stock pays an annual dividend in December. Besides that, I grew up in Orlando and have pretty much always loved the company. This trade is based on the assumption the stock will continue to climb after the December 2014 ex-date.
Total covered call premiums: -$70.77 (I gave up this return based on the roll up)
Total dividend payments (forecast December ex-dividend): $86.00
Total stock gain at $92.50: $473.01
Total, absolute gain on the position: $488.24
Total, absolute return percentage ($488.24/$8,758.99): 5.57%
Annualized total return percentage (held approx. 90 days): 22.61%
Sensitivity analysis suggests that if the stock is not called away at the $92.50 strike, I will roll out again – and might roll down to adjust. The $90 strike is profitable, and the $87.50 is close, so between the dividend and the additional call premium, this position would remain in pretty good shape.