Saturday, January 24, 2015

Taking the Hit on WIN

It’s probably been a couple of years since I decided to cut my losses on a covered call position, but I recently did just that on my WIN position.  I did well with two WIN trades in 2014, so I thought I might just return to the well for another go – the stock has typically had a great dividend, and it traded in a narrow range that set up a nice roll-out strategy.  That’s not how it worked out this time, however.

I should have done a better job with due diligence, which would have red flagged the stock for me.  A planned split had been announced for the shares, with many assets being spun out into a real estate investment trust, or REIT.  Holders of WIN shares would receive shares in the new REIT, but a dividend cut was also planned.

All these unknowns made me increasingly uncomfortable with the choice of WIN, so I started making plans to unwind my covered call trade early this month.  I did collect a dividend along the way, so even though I knew I’d take a loss there were some premiums and the dividend to soften the blow.

Still there was a net loss on the trade of about $1,000, or -13%.  That’s going to happen in a portfolio from time to time, which doesn’t make it any more fun, but it is the reason I keep between 12 and 15 trades going at any given time, and I’ve already reinvested the proceeds.  For the most part, my trades hit the mark of a 12% return annualized, so this one will be easily made up, probably will be made up for during the month of January, as a matter of fact! 

Here are the final results of this most recent WIN trade, as always, net of commissions and fees:



Bought 800 shares in late November with an average share price of $9.85 (total $7,879.00)
I sold covered calls at a $10 strike price for the duration of this position.

Net Loss:

1) Options Income:  = $109.00
2) Dividend Income (December): $200.0-
3) Capital Loss when unwound at $8.14 per share:  -$1,363.15

Total net loss on the unwound position: -$1,054.14
Absolute Return on Investment: -$1,054.14/$7,879.00) = 13.38%
Annualized Return not calculated due to net loss status of the position.

1 comment:

  1. Jim, sorry to hear your loss. I admire your courage and willingness to share your story. I look forward to your next analysis.