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The Procter & Gamble Company Message Board

  • chaz.meister chaz.meister Oct 15, 2012 1:33 PM Flag

    $70 Covered Calls, Thoughts?

    I'm a retiree, diversified my P&G stock, but still have a lot. No income other than dividends, so I try to add to P&G by occasionally selling covered calls. Done it many times, always expired without being called away. I think a few of you do this also. However, the stock seems hot now though, and I'm thinking about selling Jan. $70s, which only bring an 85 cent/sh premium.
    Anyone think it will go through $70 by then. I have a high enough 2012 tax bill already (sold an asset), and with a low cost basis and shares in a taxable account, I hate to pay the capital gains on those shares for just 85 cents. Thoughts? Also, anyone know if a call sold with a strike date in the next year (2013) is taxable in the current (2012) year, or the next year.
    For the P&G working folks out there, I wouldn't be doing this stuff if I was drawing that salary. Things change when you retire, expecially when you're holding a stock like P&G which hasn't performed well over the last few years (except for the last 3 months). Gotta juice the dividend a little
    Thanks
    Chaz

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    • Chaz, I use the same strategy from time to time and have generally had good results.

      I personally don't sell calls for premiums much under $1.00 unless I am really content with the price and trying to sell the stock. I am not smart enough to know whether the stock will be at 70 in Jan or not.

      Calls are taxable when exercised or they expire. So, a Jan 13 call would generally be called or expire in Jan and taxable in 2013. However, if the stock does go above 70, there is no restriction on the buyer of your call from exercising at that point - like late Dec for example. That doesn't often happen but could if the buyer wanted the taxable event to be in 2012.

      I would suggest forgetting the Jan 13 @70 and look at the following:

      1. Are you willing to continue to sell some P&G stock over time to diversify further? If you'd really rather keep the stock, you probably don't want to be selling close-in calls with small premiums.

      2. A better strategy could be writing some calls for longer periods of time, higher strike prices, and higher premiums. I have collected lots of premiums on these and would also be happy if the stock was called away at these higher prices.

      Good luck.

      • 2 Replies to follansdave
      • Wish I woulda sold those Jan $70s now, could bought em back at a fraction, but you just don't know. It seemed like the run from $60 to $70, only after the Ackman involvement, was to good to be true. Perhaps Ackman only owns 1%, but I doubt if any or all of us would have gotten the opportunity to meet with McDonald and hand him a 75 page critique. That had to be humiliating for someone of his stature, whether the board backed him or not.
        I retired in 1999, fortunately diversified just before the Durk Jager crash, and wished there would have been an Ackman around to help avoid that. As I said when you are working, those crashes don't look so bad, and perhaps are buying opportunities, but it's gut wrenching when you are a retiree..

      • Not sure if this will work but we'll see. Tomorrow is the ex div date 0.562 cents. I bought 100 shares at 68.97 and then shorted 1 April $65 call for 4.60. I only did 100 shares to experiment. I wonder if I will get assigned before the close today which would be $65+4.60 = $69.60 sales price. Wouldn't the person holding the call exercise so they can get the dividend? Also if they don't and I hold over night I will get the dividend. But the stock should drop by the ex div amount and the call should drop as well to offset. I guess the real risk is if I have to hold until April. As long as it stays above $65 I will collect the div's until I eventually get assigned. Under $65 I am a buyer anyway.

 
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