Yes, there is a chance your stock could be called away early before expiration, but if you think about it, there is no rational reason for a call buyer to exercise early. SPWR pays no dividend and there is no economic benefit from a call buyers perspective to do so. If you can think of a reason, let me know.
Now what I usually do is buy deep ITM calls with durations that carry me into the next tax year or beyond and than sell vertical spreads or calls with shorter durations. If a stock has weeklies, more opportunities I have for collecting premium. The reason I do this is because the premium I collect on the covered call is often as much as 7-10% of the cost of the long call. If I plan to hold the call a long time, the odds become pretty good that I will be able to recoup most if not all the money I initially invested in the long call through premium collection.
This is why I do not worry so much about stocks going down, because I am collecting or getting a return of capital by selling the calls.
However, I will also often place a collar on the trade by buying a long put as well. I did this with CSIQ at earnings. With Collars, I always look for the price at which I can sell a covered call at to meet the price of the long put. This way, I get the additional downside protection for free.
There are many tricks to the trade, but once you learn the basics and start applying them it becomes easy.
BTW, the same process can be used for selling puts.
Hope this helps.
Here's an example. You own 9000 shares of spwr at today's price of 37.70. You decide that you would like to collect some premium so you decide to sell the September 40 strike that expires on 9/20. You collect 60 cents per option or a total of $5400. Come expiration, spwr is trading at 41. If you do nothing, you will keep the the premium of $5400 plus the appreciation of the stock or $3.30 cents times 9000 equals $29,700. You total profit is $35,100 and you are out of the trade.
However, you also have the choice of buying back the option you sold for .60 cents which upon expiration day if the stock is at 41 will be worth approximately $1.05. A dollar of intrinsic value plus .05 cents for extrinsic. If you buy it back for $1.05, your next trade is to roll up and out meaning, look for an option that is selling for more than what you paid to buy it back plus give you some more upside potential. An example might be to roll the option to November and sell the 43 strike for$1.50 (hypothetical example). So in other words you do not have to let the options you sold get excersized if you think the price is going higher and you do not want to relinquish your shares.
Here's a real life example that I went through with CSIQ. Originally I sold the 28 strike, but when they posted earnings the stock surged past 28 so I bought to cover the 28 strike option and rolled it up and out to a september 30 option making sure the price I sold the 30 strike for was greater than the price I bought to cover the 28 strike at. (I made money on the roll up) Well, the stock continued on a tear the next day and went to 33, so I did the same process again, I bought to cover the 30's and sold the 33's at a greater price than which I had bought to cover. (again making money on the roll up.
Make sense? This is how I hedge my long positions and ride out storms. When spwr goes into a down streak, I have my covered call their to hedge and collect cash for reinvestment or income.
I don't know what you own exactly, but if you sell a vertical spread or options with different expirations, you will always have the opportunity to roll up and out without giving up the profit
Does it raise any questions for you about spwr's business or questions about some of the other companies mentioned? What observations and conclusions do you take away from it?
Ok Bucketonickels, Here's what I put together. I started with a breakdown of revenues by business segment and will make inferences in regards to net income contributions based on percentage of revenue.
SPWR Revenue Breakdown, Q2 2014 versus Q22013 (000's):
Solar Power Products: $237,212 Q2 2014 versus $238,403 Q2 2013
Solar Power Systems: $234,852 Q2 2014 versus $299,610 Q2 2013
Residential Leases: $32,679 Q2 2014 versus $28,673 Q2 2013
Other Revenue: $13,128 Q2 2014 versus $9,830 Q2 2013
***Information taken from recent 10Q filing
Business Unit Revenue broken down by % of total revenue pie applied to Net Income to get a breakdown of Net Income contribution by business unit:
Total Q2 2014 Revenue = $507,871, Net Income Q2 2014 = $14,102
Solar Power Products: 46.7%, Contribution to N.I. = $6,586
Solar Power Systems: 46.2%, Contribution to N.I. = $6,515
Residential Leases: 6.4%, Contribution to N.I. = $903
Other Revenue: 2.6%, Contribution to N.I. = $366
Total Q2 2013 Revenue = $576,516, Net Income Q2 2013 = $19,565
Solar Power Products: 41.4%, Contribution to N.I. = $8,100
Solar Power Systems: 51.9%, Contribution to N.I. = $10,154
Residential Leases: 4.9%, Contribution to N.I. = $959
Other Revenue: 1.7%, Contribution to N.I. = $333
Revenues decreased YoY from $576,516 to $507,871 but the decrease could be explained by spwr holding onto projects longer or simply just the unpredictability of revenue recognition and when projects get built and sold. This is where understanding their back log and what they are holding onto in their balance sheet would be very helpful understand to accurately compare year over year.
The only increases in earnings contributions came from residential leases and other revenue categories. However these numbers are very small in relation to the total Net Income contribution. Clearly, the big money comes from selling systems and products to distributors/installers. Hence, the yieldco, strategy being in vogu
Below is a list of solar companies reported revenue and net income that have reported so far:
Ranked by Revenue:
CSIQ: Q2 sales $623.8m, net income $55.8m
FSLR: Q2 sales $544.4m, net income $4.5m
SPWR: Q2 sales $507.8m, net income $14.1m
JKS: Q2 sales $392.1m, net income $22.3m
JASO Q2 sales $390.5m, net income $6.5m
SOL: Q2 sales $387.1m, net income $0.8m
Ranked by Net Income % of sales:
You may be right. But the report wasn't bad, just missed the mark of a few analyst who never get it right anyway. I'll stay long given the guidance and sell some calls to recoup some capital.
The report was decent and gave no reason for concern. The additional costs for freight which impacted margins seems like it will be made up in Q3. Sounds like JASO stuffed the channel before the US tariffs were announced. Good for them! Nothing fundamental to raise concern.
You cant give to much creedance to quarterly numbers with solar in general. If you smooth things out, Jaso numbers look pretty good and on target to hit year end expectations which they have increased. Remember they blew away eps expectations in the first quarter but under delivered this quarter. Take the average and JASO is ahead of the game.
Or a $1.50. This is huge. But makes me ponder as option sellers are probably laughing all the way to the bank thinking such a move is not probable.
Hmmm, John_hong88, a person who says they have been following Stocksgrrls for the last few months but yet your member status was created yesterday and coincidentally appears to protect stockgrrl. Is it possible you are stocksgrrl? I'm sorry anybody that rants as much as she does, who posts and spends as much time as she does on YMB, who professes to be an expert but yet to post a trade or target entries or exits, and only offers mumbo jumbo about moving averages, mean reversions gaps etc, and last but not least, who uses a picture of an over weight middle age woman in a bikini is certifiably insane.
But hey, I'll leave it alone going forward. No more stockgrrl bashing from me. I can simply place her on ignore thanks to our wonderful message boards here at yahoo. Everybody else can make their own judgement. PS Stockgrrl. spwr is not below 36.54 today but you still have the rest of the week to see if spwr gets to 35.22ish. LOL Good bye and good riddance!
Didn't you realize she had to double up on her med's last night and would wake up grumpy.
You are cracking me up stockgrrrl. Have you taken your meds today? You should actually read the stuff you write. Its your pompous attitude that is the problem.
I don't think she is. But I wanted to call her out on an actual entry which she finally said short at 36.54 because by tomorrow it will be lower. She sure pretends to know exactly where this thing is going. And as far as I can tell she is batting 50/50. Calling a short when it was around 38 ish (correct) and calling a short based on a bear flag last week(wrong) and then coming up with more mumbo jumbo about if it does this than this and if it does that than this. Give me a break. Just put a stake in the ground and than back it up with your analysis. But don't give a bunch of analysis without targets. And then, if you are right your right but if you are wrong than so be it.
You said it would be lower tomorrow than 36.54. I'm just putting my money where your mouth is stockgrrrl, since you don't seem to want to share your entries and exits.