Covered Call on CVS, positive contribution from stock, option premiums and dividend….Unrealized profit of $1,098, 5.1% return in 49 days or 37.8% annualized.

It doesn’t happen often when a CC position is profitable on the stock, option premiums and dividends. Our position in CVS is currently positive with all three. Early on the stock dropped (blue line) so we were losing money on the stock and making money on the options (red line). Recently the stock has run up. In the table at the bottom you can see our option rolls as the stock increased in value. Our rolling could have been more aggressive (higher strikes) as the option profits have declined as the stock pushed higher. We remain bullish on CVS and like the dividend. Plans are to continue rolling the options and hold the stock. On Mar 15 we purchased 300 shares and sold 3 Apr 23 $74 Calls to start the position.

Lumber prices are ridiculous….CC on WY (Weyhauser) ….can we make enough on the CC to offset some of inflated lumber prices on reno?

Lumber prices have gone crazy. Rather than complain about the prices we decided to establish a CC on one of the top lumber companies, WY. This “approach” has worked in the past with Peleton. We wanted to buy a Peleton so we set up a CC and paid for the bicycle 50x over. I don’t think WY has the same upside as PTON had but we might make some money and offset some of lumber costs on our porch expansion at the cottage.

On Friday we purchased 500 shares at $38.53 and sold 5 Jun 18 $39 Calls for $2.00. After one day we have made $191…..enough to buy a few boards!

We did look at the charts and liked the entry point. Company financials are in good shape and it pays a dividend that yields 1.75%. Based on the current housing shortage, lack of inventory at building outlets and consumers with lots of money for renovations we plan on holding the position and roll the calls. Q1 results were announced yesterday. We took advantage of the dip to establish our position.

The Value of Dividends with Covered Calls… an example with PBR

On April 6 we established a CC on PBR when we bought the stock for $8.43 and Sold Apr 16 $8.50 Call for $.17.When we set up CC we were planning to collect the $.29 dividend (ex date Apr 15).

The stock dropped in value after we established the position (blue line in graph). Our $8.50 Call option expired and we wrote Apr 23 $8 Call which we rolled up and out to Jun 4 $8.50 as the stock price recovered.

The $145 in dividends we collected have made this position profitable (black line). Without the dividend we would be losing money. Dividends can make the difference between a winning or losing short term trade. We like the yield on PBR and plan on continuing to roll the options and hold the stock.

With CC’s the profit can come from the short option, stock appreciation up to strike price or from the dividend.

VIAC CC Recovering ….slowly becoming profitable

Patience with the VIAC CC is starting to pay off. On April 1 when we established the CC and bought the stock at $45.12 we thought VIAC had hit bottom….but the stock continued to decline (blue line showing profit/loss on the stock). Despite the drop in the stock we resisted the temptation to roll the May 21 $45 Call down. As the stock recovers the short option has remained profitable. Had we rolled down we would have offset some of the gain from the stock recovery. Plans are to keep the position and roll the calls as we approach 21 days to expiry.

The position has become profitable….we can almost buy a case of beer!

SPY Ladder….More Learning….More Tuition Costs….after 74 Days

We continued with our SPY ladder. As IC’s approached 21 DTE we rolled them out or up and out. . Where possible we did a vertical roll on a few of the IC’s using the credit from the Put side to roll up the Call side (want to minimize any incremental investment so limited the ability to roll) . In most situations we could only roll up the calls a few dollars.

In the graph below you can see an improvement in the return when the SPY fell for a few days…..followed by a decline when the SPY started to rise again.

Little hesitant going into June based on the upcoming dividend. Rolling calls that remain “in the money” will create a risk of assignment and I want to understand the risk associated with assignment.

So far we are losing $1,429 over the 74 days.

Current open positions are in the table below

Update on SPY “Ladder”…..Four IC’s Closed, Five Open….Profit of $2,255 after 47 Days

Our SPY experiment is hitting full stride. Our first four SPY’s are Closed and we have five open positions (green background in the table). The rise in the SPY last week created pressure on our positions. With SPY closing above $400 we have short calls at $400 and $403. We rolled up our Put spreads to increase our premiums and reduce maximum potential loss. All five of the open positions are currently losing money. We will look to close the positions as they hit 21 days before expiration (or hit 50% of maximum profit). If SPY continues to rise we will roll our Put spreads up until the short Put strike reaches the short Call strike. (Iron Condor becomes an Iron Fly at that point).

Assigned on NUE Covered Call, Profit of $240 in 6 Days, 1% Return on Capital or 44% Annualized

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.

Earnings Trade on RH – Profit of $1,429…..should have been more

On 3/19 we set up an earnings trade on RH. We established a Covered Call (Bought 100 shares at $515.77 and sold a deep in the money $470 Call option. Volatility was extremely high so we received excellent premiums of $58.10 per share. With the shares trading at $515 and expected earnings move of +/- 14% we thought we were being conservative with a $470 strike price. In addition to the CC we set up a deep out of the money Bull Put Spread to capture more premium. We sold the $470 Put and bought $450 Put…..with the expectation we had minimal risk of getting Put the shares (they were $50 out of the money and we didn’t want to have to buy 300 shares @$470). Much to our surprise in the two days before earnings RH stock fell from $515 to $480…..and we were now well within the expected earnings move range. We bought back the Bull Put Spread at a loss of $655. We sold a new Bull Put Spread at lower strikes ($440/$420).

Turned out RH earnings were good and after a quick dip the stock rose back up over $500….so we left money on the table. On the Covered Call we lost $4,577 on the stock, made a profit of $5,809 on the short call option for an overall profit of $1,232. The 2 Bull Put Spreads made a combined profit of $197 (would have been $1,400 if we had just sat on the initial spread).

I don’t usually do “earning trades” due to the volatility and uncertainty….so we made a bit of money and got a little stressed!

Price decline in SDC (Smile Direct Club) not helping….

SDC was a great performer for us over the past year. Recent price declines are taking a toll on the overall value of my account. In January the stock had generated over $200,000 in unrealized profits. Over the past three months that deteriorated to just $70,000.

Why we do covered calls…..as the stock dropped we rolled the short option strike prices down. The incremental premium collected while rolling down helped offset the stock losses. Profits on the options increased from a loss of $10,000 in January to a gain of $60,000. Overall the net profit for the position has dropped from $190,000 to $140,000 but without the options it would have fallen an additional $70,000.

Hopefully we see some strengthening of SDC stock price in the near future.

Chart data does not have all the position history. Tracking system was updated in January and history was lost….in case you are wondering how the numbers jump so dramatically at the start of the chart.

Closed MU Covered Call/Iron Condor for profit of $4,346 in 52 Days

Yesterday (3/24) we closed our position in MU. We opened it on 2/1/21 as a covered call (Bought 200 shares @$79.71 and sold 2 Feb 12 $80 calls @$2.53. On February 23 we closed the covered call (Blue line goes flat) and opened an Iron Condor (Sold 20 Contracts April 16 +$65P/-$75P and -$105C/+$115C. Our goal was for the stock to remain between $75 and $105 so we could keep the premium collected. We closed the position yesterday as we were exceeding 50% of the max profit potential. The combination of CC and IC generated profits of $4,346 ($1,754 with the stock and $2,592 with the options).