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  • erikcs1 erikcs1 Jan 23, 2013 5:39 PM Flag

    I Can't Win on Covered Calls

    Corey. I was mistaken in my post. I sold Dec 18 calls in October which expired worthless. I sold the March 20 calls after that for .45. I think maybe you're right about it staying above 20 by March but time will tell. Only problem with selling puts and such is that I have no margin on scottrade so I can't really do that. Even if it gets called I'm still a good ways up on it so I guess I can't be greedy or complain too much. Just funny how this always happens to me. So basically if I'm selling covered calls go ahead and bet the mortgage going long.

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    • coreylynnh Jan 23, 2013 6:13 PM Flag

      Wow, I wish I had your problem. Everything you buy you make a premium on selling calls then make another nice profit on stock appreciation, and on top of that you will likely get a dividend by March expiration! I am assuming you chose December and then March to collect dividends. So I am wondering about your issue with this. Are you upset because you feel you could have profitted more by not selling the call? Are you upset because you want to own the stock? I just am not following what is bothering you.

      By selling those calls you are lowering your cost basis, as is collecting those dividends, and therefore "minimizing risk" while also getting an income/profit. On a further positive side if the stock gets called away you locked in a nice profit from stock appreciation. If by March expiration the stock is above 20 and assuming a similar premium on the December call and combining the March call you would profit about 4.5% on those premiums, make 23.8% on the stock appreciation, and also snag about a 2.2% return on your investment on the dividends in just 6 months. This is a 30.5% profit in 5 months! This is like doubling your money every year at this rate of return! AND you reduced risk by selling those calls and choosing a nice dividend stock to lower your cost basis! I would be ecstatic to be in your shoes.

      • 2 Replies to coreylynnh
      • Really all I wanted to do was sell the calls and make a little bit on that while collecting the div until it got up to what I thought was a good exit price (that being about 22). So it's true that I still have a nice profit, it's the opportunity value that I'm missing. I just didn't think it would go up this fast. Honestly I didn't think about the call months in terms of the div. I usually just sell calls a couple months out from the present month.

        I'm experiencing the same thing with CE. I bought at 37.73 in October (same day as SWY) and sold 42.50 Dec calls. It went to over 43 so I had to buy them back to keep from losing the stock. I then sold Jan 45 calls and it promply went to 46.5 so I bought THEM back too. I then sold Jun 50 to get back all the premium I lost. It closed today at 47.37. Just like SWY it went up alot fast and further than I thought it would. All this buying back of calls was probably stupid but it just keep going further than I thought.

      • Corey, got your post about me being stupid and I agree. For some reason I can't reply to your most recent post. The problem with buying more shares, which I agree with, is that I am fully leveraged. So I'm left with buying back and calls and selling longer term ones, letting the shares get called and buying more (actually less) at a higher price as it goes up, or just letting them get called keeping the profit and saying to hell with it. Maybe I should sells puts as you suggest though. But sure as I sell puts it'll tank on me. Oh well.