Opportunity for Adjustments on GE and ACM

I saw an opportunity in the market yesterday on two positions and decided to take aggressive action.  The positions were ACM and GE, and when I established the covered calls on them I had to sell pretty far out in the calendar.  I was able to move both up, and did the trades for an overall gain.

In the case of ACM, the position is pretty much a wash at this point.  It is a legacy in the portfolio from when I used to work there; I have 800 shares and the price basis is about $25/share.  Earlier I STO for 4 22.5 Mar and 4 25 Jun 2012s, which the intention of cashing these out since they don’t fit my trading plan.

With the shares rising of late, I rolled-up the 22.5 Mar to 25 Mar.  For the lower strike contract, I paid $612 to close the position, but got $88 back, plus the additional $1,000 if the contract is exercised.

In the case of GE, I had 4 18 Jun 2012 contracts.  They were in the money, and basically that investment was going to sit for another five months.  My basis in the shares is $16.17, so I decided I could spare a little money to move up to 18 February contracts.

The BTC cost me $628, but I got back $384 on the ITM February contracts.  My net on option premiums is -$27, but I collected dividends of $68 on the shares, and my capital gain if exercised is $712.  So I’m still in a good spot with this one.

Between the anticipated marginal capital gain on ACM, and the BTC/STO round trips, the total gain from this trading activity is $232.  When calculated against my account balance, the percent return is about 0.18%.  It’s moving in the right direction…and there will be some benefit to being able to put the cash back to work in GE’s case.  And I am glad that the ACM position is getting close to a wash.

Adjusting IP: Rolling out and Rolling down

I decided to buy back the 29 Dec 2011 calls I had on my IP position.  I saw the transaction as an opportunity to get back into a credit position on my call premiums, which I was able to do by selling the 27 Jan 2012 - my basis on the shares is $25.32.

I collected $339 for the new call contract.  If called at $37 in January, the total returns onmy 200 share position will be as follows:

Option premiums:  $152.45
Dividends:  $52.50
Stock gain:  $317.45
Total return:  $552.47

The price basis on this position is $5,064, so we have an absolute return of 10.32% and an annualized return of almost 36%.  Will keep you posted.

Adding to Position: DIS

Over the last few weeks, DIS announced an increased annual dividend of $.60 per share, or $60 on lots of 100 shares, which is my usual transaction.  I held 200 shares and have a 36 Jan 2012 written against them.  With the shares trading above $36.00 and Dec expiration date coming up, with the ex-date before that even, I'd become concerned that my shares might be assigned early.

I like the returns this stock is generating for me and would like to hold it for larger capital gains, which I think are possible over the next year.  My share basis is about $34.50 and the 52-week high at the time I bought my first position was $44. I would like to sell at $40 or above.

So I decided to hedge against the early call by buying another 100 shares, which I did Monday, at $36.35.  My average basis is now $35.17.  Against these shares I sold a 37 Jan 2012, netting $84.

I should collect up to $180 in dividends from DIS, and have already collected $322 in option premiums.  If I am called at these strike prices the stock gains are $312, for a total return of $814 on an investment of $10,552, an absolute return rate of 7.7% annualized at 38%.

If I am called early on the shares this week I'll revise the results in a post on Friday.

Some Buy Backs

Q:  A Greek, and Italian, and a Spaniard go into a bar for a drink.  Who buys?
A:  The German.

Between the European issues referenced in the joke above - I found it in the Washington Post last week, but misplaced the source - and the inability of the "Super Congress" to reach a budget deal in the US, the markets took a major hit last week. 

With my account fully invested in positions, I looked for an opportunity to do something to help continue progress on rescuing my IRA, and what I decided I could do is to take some of the covered calls off of the table as their premiums declined in value quickly.  Targeting my December calls, I found three that I could buy back for a net profit.  I also found one January call to buy back.

• 2 GE 17.50 Jan 2012, sold for $137 bought for $72; profit $65
• 4 AA 11 Dec 2011, sold for $124, bought for $52; profit $72
• 2 DIS 37 Dec 2011, sold for $155, bought for $44; profit $111
• 2 CSX 22.50 Dec 2011, sold for $96, bought for $45; profit $51

Taken on their own merit, these trades netted a total of $299.  In addition, since three of the stocks will probably go ex-dividend during December (CSX, GE, DIS, although GE and DIS have yet to announce), these holdings are now clear of the risk of early assignment.

While this isn't a core element of the covered call strategy I adopted for my account, these profits will add to my returns, and I can now look for new covered call situations for them.  The pure execution of the strategy would have been to keep the calls until they expire. 

I hope to execute replacement trades in the next week, but will probably wait a few days for the market to stabilize after the series of down days we've been having lately.

If I am able to get these trades done during November, that will be my next post.  Otherwise, I will complete an analysis of the account activities to date and report on returns during the first two months of following this strategy.