Adjusting ABT Covered Call in reaction to announcement of good quarterly earnings and raised guidance…..and stock drops $2…..

Yesterday we adjusted our ABT covered call position based on the $2 drop following the earnings announcement. The earnings call was positive with the company communicating excellent results and increasing annual revenue and earnings guidance. So why the drop?

Historically we have found opportunity when a stock we like announces good results and it drops…..usually a temporary dip influenced by short sellers and investors who play the news. Our experience is within a week the stock is likely to rebound. To take advantage of the dip we buy back the short options and wait a few days before selling another call to return to a covered call strategy.

Yesterday we bought back the Oct 23 $107 Call options for $.85 (sold on Oct 19 for $2.87). We are looking for a bounce over the next few days with plans to sell Oct 30 calls to re-establish the covered call position.

We established the ABT covered call on 5/26 and adjusted (rolling up, down and out) the short calls on a weekly basis over the past 148 days. During this period the company has also paid two dividends of $.36 generating $1,440. Overall the position is generating a profit of $11,192,ROI of 41% or 101% annualized (2,000 shares).

We like Abbott as a candidate for covered call writing. Weekly options. Growth stock. Quarterly dividend. Reasonable premiums (usually 1-2% per week).

Follow Up on STE Covered Call Strategy, Stock Price Run Up

STE stock has had a quick run up making our Oct 16 $170 Call deep “in the money” (reflected in blue line). For most of the time we have had the strategy in place the covered call strategy was outperforming just owning the stock (black line versus blue line). That changed this week making stock ownership alone more profitable. With the surprising run up we will have to increase our investment in the position to “roll up” the $170 Call to $190 if we wish to maintain the position.

Over 129 days the position has generated profits of $5,023, ROI of 16.3% or 46% annualized very respectable considering the conservative nature of the company.

We will likely roll up the call and maintain the strategy. We have collected two dividends during the holding period.

Goldman Sachs (GS) Covered Call Assigned, Profit of $455 in 44 Days, ROI .5% or 4% Annualized

On Friday we allowed our Oct 2 $195 options to expire resulting in the shares getting assigned. The chart below shows the profitability of the position over the 44 days. In early September the position profitability peaked at $3,385. After that the profitability of the position declined as GS stock moved down and reached a low profitability point of ($5,600) on September 23rd. GS stock price has rebounded and the position returned to profitability but rather than continue to invest in the position we decided to exit and look elsewhere for a higher return.

GS does pay a good dividend which generated $625 of income. Without the dividend the overall position would have lost money.

STE Covered Call Profit of $4,170 After 112 Days, +13.5% or 44% Annualized

STE is likely a stock you have never heard of…..but it has been a good stock for covered call writing. So far the position has generated $4,170 in profit. Not as sexy as AMAZ or FB but profit is profit. Company pays a dividend yielding about 1%. The position has earned a profit on both the stock and the options, a hard combination to find.

Assigned on BAX Covered Calls, Profit $3,325 in 82 days, 3.8% or 17% annualized.

Baxter had a nice jump in stock price the last couple of days closing at over $86 yesterday. We were short Aug 28 $83 and $83.50 calls. Plans were to roll the options up and out (diagonal) today and hope the upward momentum continued. Stock goes Exdiv today with a dividend of $.245 which we intended to capture. Made a mistake not rolling up to “out of the money” strike price yesterday and lost the dividend ($367) as a result.

We may replace the position today. Baxter doesn’t have the volatility (lower return on covered calls) but it pays a solid dividend and is a good core healthcare holding.

Update on ABT CC, Profit $8,497 in 87 Days, 31.1% Return or 130% Annualized

Our Covered Call strategy on ABT was established on May 26. Since that time we have added to the position with 300 shares on 6/25 and 400 on 8/21. Covered Calls on Abbott have performed well aided by a strong upward move in the stock. We have rolled the options 13 times and had two expirations. Abbott is attractive for CC Writing as it trades weekly options, potential for growth on the stock price and pays a dividend.

Is VIAC a good candidate for covered call writing?

We liked the potential VIAC represented (believe the idea came from

  • Weekly options
  • Great dividend
  • History of stock growth
  • Good option premiums

We opened a CC position on Jun 4 with the goal of capturing the $.24 dividend (Jun 12) and the option premium. Stock quickly jumped up in price and then fell back below what we paid (blue line in chart below). After the stock price fell and our Jun 19 $24 call expired at $0 we didn’t sell additional options hoping for stock price to rebound. On Jul 14 we started selling calls again. We have done calendar rolls at the $25 strike price each Friday.

In 70 days the position has generated profits of $5,050, 21.3% or 111% annualized. Very pleased with the return on this quality stock. I think it is a great CC candidate. Plans are to continue to roll the calls and capture the upcoming dividend in Sep.

July 10 Week Ending – Activity and Positions.

  • 28 Positions across 3 accounts
  • 24 of 28 are positive
  • 6 positions assigned (shares called away as stock price higher than strike price)
  • 4 positions expired (stock price lower than strike price)
  • Selling options added to position profitability in 18 of 24 positions
  • Large positive moves in DXCM, AMAZ, SDC stock prices create overall losses on options
  • Schwab 401(K) (most conservative of the three accounts) gaining most advantage from covered calls contributing almost 50% of profits

Note: P/L from stock and option does not necessarily equal net due to contributions from dividends that are not split out.

MO (Altria) Vertical Roll to Protect Dividend of $.84 (ex-div Jun 12)

Yesterday we rolled up the MO Jun 19 $41 Call to Jun 19 $42.50 at a cost of $.80 per share to protect the $.84 per share ($840) dividend. If the shares get called away before ex-div date we lose the dividend. The roll up was done with the stock trading at $42.15 above our $41 strike price or $1.15 “in the money”. If the option is “in the money” it creates a risk that the stock will be called away. Stock closed at $41.82 providing some cushion below the $42.50 strike price.

The covered call position is generating a profit of $675 ($1,390 gain on stock, $715 loss on option) in 7 days, 1.7% or 87% annualized. Hopefully we can add $840 for the dividend after today.

Stock price moved up after buying. Rise in stock price partially offset by increase in short option price (we are short the option so increase is negative).

Assigned on CVX Covered Calls, 59 Days Profit of $,1,702, 22.1% or 137% Annualized

300 shares of CVX (Chevron) were called away on the weekend. At the end of trading Friday we were holding 3 Jun 5 $100 calls. We anticipated the vertical roll from $91 to $100 on Friday would allow us to keep the shares (close under $100) but the stock finished strong and above our strike price.

CVX stock increased in price last week. The profit from holding the stock (blue) increased from $1,660 to $3,892. Increase in stock price had the opposite effect on value of short calls (orange) as they went from $(505) to $(2,320). Overall the increase in price was a positive for the position but the covered calls strategy left money on the table due to the rapid rise in the share price.

While owning the CC position we did diagonal, calendar and vertical rolls to manage the position.

We also collected a dividend of $1.29 on May 18.

Plan to establish another covered call on CVX as it offers weekly options, potential for stock appreciation and dividends.