On 2/27/2012, CSX goes ex-dividend. As I write this, it looks like I will collect a second dividend payment on this position, which I established with two 200 share purchases in November and January. The basis of the 400 shares is $8,745, so my average price per share is $21.86. As the ex-date approaches, I decided to look at another roll-out on the shares, keeping the same strike price that I have been targeting now since November: $22.50.
Here are the five(!) covered calls contracts I have sold on CSX:
- 22.50 Nov 2011
- 22.50 Dec 2011
- 22.50 Feb 2012
- 22.50 Mar 2012
- 22.50 Apr 2012
Normally, when I see a position I have held this long, I start to question its performance and whether I should keep it in the Rescue My IRA portfolio. And so this morning I did the analysis…I actually found something to celebrate here, which is why I posted the Aerosmith song above. The net income from my call contracts on CSX, including the sales to open and the buys to close, is $540.92 – that is an absolute return rate of 6.2%!
Per the Rescue My IRA trading plan, my goal when establishing positions is to plan for a 24% annualized position. Here we are five months later with a position that is performing against that goal; however, if I extend the position with another roll-out, it will break through to a lower annualized return. I have to think about that, but I feel comfortable that the position will return at least 12% annualized, and that is what I am really after. So I think I can roll with it!
Here’s the rest of the story, based on the current April contract, the forecast dividend, and expected stock gains if the stock is called in April. As always, these calculations are net of commissions and fees in my Scottrade account.
CSX
Total option premiums: $540.92
Total dividend payments: $72.00
Total stock gain at $22.50: $236.74
Total, absolute gain on the position: $849.66
Total, absolute return percentage ($849.66/$8745.26): 9.72%
Annualized total return percentage (held 150 days): 23.64%
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| CSX six month chart - the black line is the $22.50 strike price. |
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