03/21/11 Sold CALL LO 09/17/11 100 LORILLARD INC OPEN
Netted over 2% on my money. If called I'll earn another $11 per share or 12% in six months plus the additional 2% in option income. I'll also earn 2.6 per share in dividends unless the stock is called early.
This was all done in an IRA. I'm also short out of the money puts in the same account.
I can't believe how LO has gone from $75 to $100 from January to April - this $25 increase is just a dollar less than MO's share price!
Anyway what is even more astounding is that back in January when LO was $75ish, I sold the Jan '12 $75 put for $9, and now it's worth $3. So yes it's a nice gain... but if I had bought the Jan '12 $90 put for maybe $2 (or whatever it could have been back then), I'd have made so much more off it. But there's no way I would have seen LO fly past $90 - I expected LO to stay in the $75 - $80 range for all of 2011.
this is why I "can't" buy call options and prefer to sell naked puts instead - even if LO falls to $5, I can just roll the puts over another year, until the day that LO is officially dead or LO rises again. Yes it's less profit but most call purchases end up being worth less than what I initially paid...
I didn't expect to see LO at $97 today. My initial buy price was in the $60s back in 2007 or 2008. So this $35 increase looks good on paper but I can't see myself selling LO in general; plus I don't even have that many shares - I've always preferred MO/PM instead.
Anyway I'm guessing that you're a bit down on those calls, not that you'd buy to cover... but when you sold them, did you ever expect LO to get this much closer to $100? I surely didn't.
Assuming you're assigned, do you think you'll buy LO again and sell $110 calls? Or will you sell any $100 puts now?
A few months ago I sold MO $25 June '11 covered calls, and now that MO is actually at $26, I recently sold $26 Sep naked puts. Not exactly a hedge, and MO could fall back to the teens, but then I'd just roll that put over to Jan '13.
It's still too early to say what I'll do if my shares are called away because the stock isn't in the money yet and we still have no idea what the FDA plans with regards to menthol in cigarettes.
Since this was all done in my IRA taxes are not an issue. I'll still have a good size position in LO regardless what happens to these shares.
Excellent, thanks for sharing! What'll you do if LO dives to $80/$85, just hold and enjoy the divvy, and sell more covered calls?
I haven't done the math to determine if LO or RAI pay better option premiums for covered calls / naked puts.