Covered Calls Anyone?

 

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Update:

2/9/2015

Today, I cleared out my last 3 calls on FE. I paid .20 cents to close the position. All in all, I netted $177.75 for those three calls in 24 days.

Basically, I collected right at .65 cents which is almost 2 quarters of dividend payments. I am happy with the results overall. I bought the other 9 calls back on Friday and netted $571.00. All of the profits totaled $748.75 for the 12 calls. I would love to do this same process every month, but that is a lot to ask for.

Looking back over the 3 weeks, it is easy to see that FE rose to over $41 and has now fallen to below $38. If I would have sold the stock outright, it would have resulted in a very large profit. Well, hard to look back and say this or that. Who would have thought the stock would have risen almost $4 in that time.

Well, either way, I made a nice profit. If I would have done nothing in that time, I would have collected the dividend like I have been doing all along. I took my chances expecting the stock to just sit and do nothing. That did not happen, but it rose over 10% and lost the entire gain all in 3 weeks time.

So, I may not have collected the rise in the stock price, but if I am just holding for the dividend like all the other dividend investors, I would not have seen anything but a wild ride for the last 3 weeks and I would be right back where I started. In that way, I feel very happy with the profit and I have my limit orders in place to do it all over again.

Hopefully, things work out.

Any thoughts would be greatly appreciated. Anyone else selling calls or trading options?

Good luck.

Keep cranking,

Robert the DividendDreamer

Update:

1/29/2015

Well, 2 weeks have passed. Seems like I sold a little soon on the calls. I could have pulled out almost twice as much money if I would have waited another day or two.

Wow! Hindsight is always 20/20. Although the price shot up right after the sale of the calls, it seems to have found a top and is retreating a bit. I am still in the call, however, they are underwater at the moment. FE will go X DIV next week, so the price will drop .36 cents right there. If it closes just under 40 by Feb 20, all the calls will expire and I will have made a nice percentage in a month’s time.

If it closes just under 41, I will be called out on 8 calls and 3 will expire. I have about 3 weeks until the calls expire and lots can happen in that time. No matter what happens, I made some money and collected a dividend along the way. I also have some stocks on my list that will be purchased if I am called out. That way, the money will be put right back to work.

Ever since FE cut its dividend, I wanted to get rid of the stock. When it was paying .55 per share, the cash was fabulous, but the 40% dividend cut was a major issue for me. Now that the stock price has jumped quite a bit, it has become a little easier to do things that would result in my reducing my share count in FE and buying new stocks to replace it.

Keep cranking,

Robert the DividendDreamer

1/16/2015

I sold 3 (Feb 41 calls) at a limit price of .56 cents. I collected $157.14. In a few weeks the dividend of 36 cents will be paid. If I get called out, I will get $41.00 per share, 56 cents for the call and 36 cents from the dividend. It is all in an IRA, so no taxes. There are plenty of other stocks that are better dividend growth vehicles, so if I get called out, I will be able to buy some other stocks with the proceeds. I also have some nice cash flow to show for it. In the last 2 days, I collected just over $1000.00 in my IRA. we will see how it goes.

Keep cranking,

Robert the DividendDreamer

   Today, I felt a little emboldened. I saw what was going on in the market felt it might be the time to generate some income. I saw that the Feb 40 calls for FE was paying .80. That is nothing to sneeze at. 2% on the call price is a nice payout in a month.

    That 2% is on the $40 not on my original cost which turns out to be a bigger return. I used limit orders and sold 3 contracts at .85, 4 contracts at .86 and 3 contracts at .93. The limit orders allowed me to pick up an extra $80.00. I did not expect the sales to be beyond my limit, but they all went at the .85 limit or higher.

I will receive the dividend for the shares because it will go ex div in early February. I had some reservations about selling the calls, but cash flow is very important and that is a lot of cash for a few weeks time. Plus, I got it in my account today and I will be buying something that is on sale real soon.

     If I get called out, I am sure that there are some nice stocks to choose from to replace the lost shares. I am of the mindset that a gain is a gain, so I better go with it when possible. I generated over $850.00 this afternoon. All of it in IRA accounts, so no taxes. I feel that I can’t beat that even if I get called out. That money will go towards more shares and more dividends.

     I have been at a standstill on my trading strategy account except for the dividend it generated, so anything to generate cash flow seemed to be a no brainer.

     Anyone doing something similar ? What are your thoughts on this strategy?

Keep cranking,

Robert the DividendDreamer

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About dividenddreamer

Doing what I can to make the best of today and the most of tomorrow.
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10 Responses to Covered Calls Anyone?

  1. you need access to a great covered call screener!
    Try “OptionsCreme”

    http://www.OptionsCreme.com

    • So, what is you take on the current Options for T.

      Keep cranking,

      Robert the DividendDreamer
      AKA — Seeking Dividends

      Follow me on Twitter– Seeking Dividends@DividendDreamer

  2. DivHut says:

    Thanks for sharing your recent options activity with us. I’m not doing anything similar but if I were to jump into options it would be with covered calls or writing puts. I guess I’m more risk averse than many but I see those two methods as a relatively safe way of trying out options.

    • Thanks for stopping by. Well, I got a little income for the month, and so far, I am a little under water with some of the calls. However, the month is not over and I will get the dividend either way, so we will see how it goes. Good luck with everything. It has been overwhelming for me in the last month or so. Not so much with the dividends and such but with life in general. Hopefully, things pan out in the next few months. Good luck to you and keep in touch.

      Keep cranking,

      Robert the DividendDreamer

  3. Robert,

    Thank you for explaining and sharing your recent activities. Options definitely aren’t for me, but from what I understand you’re taking the least risky road. However, I still believe options don’t provide long-term value and require too much of a hands-on approach.

    Glad things are working out for you though!

    Keep it up,
    NMW

    • I didn’t even know if calls were for me either. However, I have generated quite a lot of income over the years when my stocks have traded sideways for many years and months. In all that time, I have never been called out. However, that might change this month, but time will tell. Thanks for stopping by.

      Keep cranking,

      Robert the DividendDreamer

  4. ILG says:

    Thanks for the updates! I have thought about using options here and there in my ROTH (covered calls only) to generate some income, but I don’t really think there is any position I have with 100+ shares that I really want to loose. If I had an overvalued/not performing as well position, than I would probably consider this strategy a little more!

    Keep up the updates!

    • One of the main reasons I try to buy round lots or more shares is for the possibity of writing covered calls. I have a few stocks that I would like to write against because they have run up a bit. If I get called out, I plan to buy something else that has lost quite a few points over the last couple months right off the bat. If I get called out on FE, I am going to put it right back into T shares which will increase my income about 50%. Ever since FE cut the dividend, I have been just collecting divs and calls waiting for a profit and possibly scooting to something else. Thanks for stopping by. Good luck.

      Keep cranking,

      Robert the DividendDreamer

  5. TwoInvesting says:

    Robert,

    Awesome strategy you have there! I can’t wait to get to a large number of shares so that I too can effectively sell covered calls. While I haven’t been doing it lately, I have sold a few covered calls and cash-secured puts in the past… Made up to nearly $250 one month just on puts in an account worth only $4000.

    You mention that you’re doing much of these options within an IRA. Is this a traditional/Roth IRA or a 401k IRA? The reason I ask is because it is hard to purchase full lots of shares when you can only contribute $5,500 a year. Did this limitation hamper your strategy at all? Also, have you thought of selling naked puts or calls to generate additional income?

    Thanks,

    Scott @ twoinvesting.com

    • Simple IRA and Roth. It takes a while to actually build up a good chunk of change, but in my case, I am a little (a lot actually) less diversified which allows me to have round lots of shares. I lean towards round lots so that I have options–Hey! That is an unintended pun. Anyway, I have a few accounts with a few shares from a bunch of companies, but with so few shares, buying and selling becomes an issue with the trade cost and fees. With more shares of a given stock, it is easier to make a trade because the swing does not have to be great to reduce the trade to almost nothing.

      I am currently only interested in buying stocks that pay dividends and if they rise in value, sell and buy again or another company that has fallen a bit. If I own the shares, I have no problem collecting a guaranteed premium even if I have to give up the shares if I am called out.

      Looking at the example of the last calls I sold. I banked almost 75% of the cash with 2 weeks to go in the call to experation. It made n o sense to let it ride just to gain a possible 25% extra and possibly get called out. Now, I am able to try to run the process all over again.

      I believe in allowing some wiggle room and setting a number in my mind that I am comfortable with and putting a limit order a few cents beyond my comfort zone so that I feel like I got a “deal.”

      For instance, if I want .85 cents on the call, I will put a limit order for .95 cents. and if it hits, I might even get .96-98 cents. That way, I have a little room to breath when deciding to buy it back when it gets down towards 0. I do not have to wait the whole period to get a nice premium, and if I buy back, I live to fight another day.

      Thanks for stopping by. Keep in touch.

      Keep cranking,

      Robert the DividendDreamer

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