On March 24 we established a Covered Call on NUE. The objective of the trade was to capture a dividend of $.405 (ex-div on March 30). We purchased 500 shares of the stock @$69.17 and wrote 5 “in the money” Apr 1 $67 Call options for a premium. of $2.64 per share . The call option premium provided 3.8% protection against a potential decline in stock value before we could collect the dividend.
The graph shows what happened after the CC was established. NUE stock had a run up in price (blue line) and closed yesterday at $78.75. At the close we were generating profits of $4,790 on the stock and a loss of $3,331 (red line) on the options.
The owner of the calls elected to call the shares away last night so they could collect the $.405 dividend. We sold the shares at $67 resulting in a loss of $1,,085 on the stock. Our short options became $0 and generated a profit of $1,394 resulting in net position profit of $240. Graphs shows the impact of the assignment with stock losing, option gaining and a small net profit.
$240 is not a lot of money in an account of any size…..but with market dynamics and volatility so hard to predict it was a reasonably “safe” trade that generated an annal return of 44%. They key is stringing a series of these “dividend capture” trades together on a weekly basis. In this situation the return on our investment was higher with the shares getting called away but the after tax gain would likely be higher collecting the dividend (taxed at a lower % than the gain on stock/option). We have five similar trades in play this week. My concern with the strategy is having one of the stocks experience a big decline that would offset the benefit of many smaller gains. If the strategy works over time we can easily scale the size of the trades to generate higher $ returns. If the stock falls below the short strike price we have an option of continuing to sell calls against the stock or selling the stock.
On the weekend we were assigned on our 3,000 shares of SDC. We were short 30 Mar 26 $10.50 Call options.
On Friday as the market was closing SDC was hovering right around $10.50. The market maker wanted us to pay up to $.05 to buy back the short calls. We did not think this was a “fair” price so we let the position play out. Ideally the stock would have closed at $10.49 and allowed us to keep the shares…..but it closed at $10.56 resulting in the shares getting called away.
The graph on the bottom right shows what happened over the course of holding the position. Immediately after opening the position the stock jumped up (blue line). Stock price deteriorated after that resulting in a loss of $1,680. We rolled the options each week. The premiums collected allowed us to make a profit on the options of $2,340. Net profit was $660. 56% annualized return on the capital required….so we are happy with the trade. We will open a new SDC position of similar size on Monday morning.
ABT had a very bullish article come out on Seeking Alpha (much better than I could write about the stock – look it up if you are interested). I have held shares in the company for over 30 years. The information below depicts my current position. Shares were purchased May 26, 2020. The tracking tool was updated in January and the history was lost so the data starts Jan 24. I have been writing weekly calls against the stock. Combination of stock, options and dividend are generating a profit of $28,686 for an annualized return of 23%. Not a “high flyer” but a solid medical device company with a long history of success.
The red line in the graph shows the profit/loss from the options. In the last month I started writing bullish put spreads along with the covered call. The goal is to generate more option premium. If the stock drops below the short put price I am okay with getting assigned more shares as I am bullish on the stock long term. Since adding short puts to the strategy I have reduced the losses on the options. Usually when the blue line (stock profit) goes up the red line goes in the opposite direction and offset some of the gain. The blue line has increased in the past couple of weeks but the red line held ….resulting in more profit. I sold another put spread this morning that isn’t reflected in the data yet.
Information below summarizes how our CC Strategy on LNC is performing after 267 days. We are generating profit of $23,009 (including $2,040 in dividends). The graph tracks the daily profit/loss for the stock and options over time. We started using a new tracking system in January so it does not have all for the history. From the graph it is clear we have left money on the table by writing call options that were too conservative (either “at the money” or slightly “in the money”). The stock profit (blue line) and option loss (red line) are basically offsetting leaving us with a net profit that has been flat since Feb 7. If we believe LNC will continue to perform well we should be more aggressive and sell out of the money options (which reduce our downside protection) or add out of the money bull put spreads.
The position has returned 32% or 43% annualized……but it could be doing much better if we had adjusted our approach.
From a taxable viewpoint the options have generated short term losses of $33,911 some of which we used in 2020 taxes. Holding the stock until 6/25/2021 will allow us to pay long term capital gains on the $54,880 gain.
We were assigned on Mar 19 $70 Call options on INMD this morning. We had an order in to roll the options to Apr 16 $70 Calls but didn’t get filled (couldn’t get a reasonable premium) so the shares got called away. Disappointing as our preference is to hold the stock for 12 months before allowing it to get called away so we pay long term capital versus short term capital gains.
We believe INMD is a good long term stock to hold and plan on establishing a new position next week.
The chart below shows the daily progression of the profit/loss on the position. The shares rose from our purchases price of $52.71 in January to over $70 on Friday. We rolled up the options three times. Despite rolling up the options we did not collect enough premium to offset the costs of rolling. The options lost $1,972.
Table below shows the transactions associated with the position.
YTD IB account is up 13.3% vs the S&P up 5.7%. The account is within $1000 of all time high. My Schwab accounts are down 5% from all time highs…..despite much more effort managing those accounts. Maybe too much effort!
In the Schwab accounts I have been experimenting with Iron Condors, Bull Puts spreads, SPY, dividend capture strategies and the TastyTrade guidelines (set up positions with 45 “Days to Expire” and exiting at 50% of max profit or 21 DTE. Too early to tell but so far the IB approach of setting up weekly or monthly covered calls and letting them run their course seems to be performing better. The Schwab accounts are much larger requiring more positions for diversity.
On 3/8 we established a covered call with the intent of capturing a dividend. We purchased 500 shares of FOXA shares and sold a Mar 12 $41 Call. The dividend of $.21 went exdiv of 3/9. We sold the shares on 3/10. The shares appreciated in value generating a gain of $315. The stock appreciation resulted in the option losing $182 when we repurchased the option to close the position. The dividend generated $115. Overall the position generated $255 in profit in two days.
This is one of our first attempts at using covered calls to capture a dividend and exit the position immediately after it goes exdiv. We have a number of similar positions to see if we can consistently generate good short term profit with the strategy.
AMZN CC strategy continues to perform well. Tables below show the continued progress. In late January I switched the tracking software so the graph starts with the historical profit on the stock, option and net as of Jan 25. In the tables below it shows our all time profits on AMZN as well as the Current Position Profit. On the right is the current position in our portfolio.
The table below shows the importance of the call premiums. On 1/25/21 we had a profit on the stock of $90,011 and a loss on the options of $5,700 for net gain of $84,311. In the next 25 days the net price of AMZN declined and our profit on the stock dropped from $90,011 to $85,601. The option premiums collected during the 25 days (we rolled the options 14 times….to mostly ATM strike prices) improved the profitability on the options from ($5,700) to $7,019. Despite the drop in stock profit our overall net profit on the position increased from $84,311 to $92,620. Historically we have been challenged to create profit on the short options as the stock price continually increased. In the past 25 days the covered call strategy is performing the way we would hope.
This is not investment advice. I am sharing a position that has worked out well for me. No guarantee that it will work out in the future. Individual investor….not a licensed professional.
We established the covered call position on NIO on Aug 20, 2020. It has been a wild ride with the stock driving profit of $87,917 and the options generating ($31,047) for a net profit of $56,870. We have been rolling the options on a weekly basis trying to maintain “at the money” options. Despite the excellent option premiums it has been a challenge to write profitable options which is typical with stocks that show substantial appreciation in a short period of time. Intent is to keep NIO for the long term as it has excellent upside….but we need to modify our option approach as we are not optimizing the potential.