Update on EW Covered Call Position

We were hoping to see a rebound in EW stock price and have not sold any calls since the Jun $12 $74.2 Calls expired. Unfortunately the stock has not rebounded but continued down. Without writing calls to provide downside protection the drop in price impacts 100%. Overall the call options are generating a profit of $1,914 which partially offsets the $7,300 loss on the stock. Plans are to continue to not write calls and see a rebound in stock price…..but it is getting expensive.

Update on BCRX Covered Call Strategy

On June 16 we increased our covered call position from 500 shares and 5 contracts to 10,500 shares and 105 contracts. Additional shares were purchased at $4.04 versus original shares at $5.04. On Friday the BCRX shares closed at $4.83. Profitability of the position is now $4,632 in 43 days, 12.2% ROI or 104% annualized. Our position would be more profitable had we sold Jul 17 $5 calls versus the $4 calls. Selling the $4 call offered $.77 of downside protection which seemed like a good idea with the stock dropping from $5.04 to $4.04.

6/26/20 – Assigned on TWLO – Profit of $5,971 in 36 Days, 9.7% ROI or 99% Annualized

On Friday Twilio closed above our $215 strike price and we got assigned. We tried for a diagonal roll forward to Jul 2 $220 but didn’t get filled. Good return on the investment. Excellent stock for covered call strategy. High premiums allowed us to make profit on the both the stock ($3,168) and the options ($2,803). Plan to establish a new position on Monday.

IB Account – New High, +40% YTD

Yesterday we hit a new high in the IB Account at $270,000 at increase of 40% YTD.

We no longer hold positions in HAL or CVX. We have a few positions we need to write calls against today as the calls expired on Friday. TWLO remains a good performer. SDC has a down day yesterday and it was not covered.

6 of 9 positions are profitable. We did not sell calls against EW looking for price improvement in the stock. Overall the positions are carrying profit of $33,386.

Cottage life is getting in the way of “investing life”……but that is a good thing! Need to find home for some cash and new positions.

IB Account Outperforming S&P YTD (+37.6% vs .7%) but Time to Evaluate a Couple of the CC Positions

Friday is Jun 19. Weekly and monthly option contracts expire. Although the IB account is outperforming the S&P YTD the month of June is “treading water”. Time to evaluate which positions to “roll” forward, which positions to divest and what new should we consider. The graphs below represent the daily profit/loss progression of the positions.

BCRX was a play on Covid-19. The company has a drug in clinical in Brazil. Stock has drifted down in past month. Might roll forward but sell July $4. Early clinical data was/is expected in June so selling the $4 could negate the benefit of positive data.

CVX (Chevron) has the volatility to generate good option premiums. Likely roll this forward as it has good long term potential and pays a quality dividend that is expected to continue.

We are “gun shy” with DXCM (Dexcom), our largest holding in the account. The stock has gyrated between $340 and $400. Our short options are “deep in the money” so they behave much like the stock. We need to be less conservative and sell closer to the money options that have more time/volatility built into the premium. Sounds good in theory…..but this is a volatile stock in a volatile market. Might downsize the DXCM position to negate some of the risk.

Think it is time to give up on DGX (Quest Diagnostics). Trade went south out of the gate and getting it back positive is difficult as the premium on the options are small.

EW (Edwards Lifesciences) is a long term hold. With the recent dip in stock price we stopped selling calls looking for a rebound in price before establishing the CC.

PTON (Peleton) has been a good position. Options premiums are excellent. Plan to roll this forward.

HAL (Haliburton) isn’t doing much. I don’t know much about energy stocks. Might be time to move on.

T (AT&T) isn’t a long term hold. It does pay a quality dividend but it isn’t a category I follow or know much about.

TWLO (Twillo) is a technology stock. It is performing well based on the excellent option premiums. Likely roll this forward.

SDC (Smile Direct Club) has performed well for the account in the past. Good premiums on a low priced stock. It is a long term hold. Likely roll forward. Option premiums are high enough to offset recent drop in stock price.

Covered Calls Help During Down Days

  • Dow Down 6.09%
  • Schwab IRA Down 3.29%
  • Schwab General Down 5.07%
  • IB Account Down Down 5.7%

Covered calls provide a limited amount of downside protection when the market goes down. As disappointing as a day like yesterday can be the outcome is improved by the contribution from the short calls. The stocks in the Schwab IRA were down $50,776. The options had a gain of $21,820. Despite net loss of $28,9576 some consolation is gained as the account outperformed the Dow by a significant amount.

The covered calls in the IRA are typically more conservative (written as “in the money” vs “at” or “out of the money”) than in the Schwab General and IB (most aggressive) account. More conservative covered call writing reduces the upside potential but offers incremental downside protection as evident from the results yesterday.

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).

3 New Covered Calls on BAX (Baxter)

On 6/8 we bought 3 new CC’s on BAX. Purchased 300 shares for $87.57 and sold 3 Jun 12 $87 Calls for $1.61. Net price $85.96. Potential profit of $1.04 per share in 5 days if stock stays above $87. Position is +$134 after 1 day.

BAX trades weekly options, option premiums greater than 1% per week, stock appreciation potential and pays a quarterly dividend.

AMZN Covered Call after 22 Days, Profit of $10,944, +4.6% in 22 Days 76% Annualized

On May 18th we established a CC on Amazon by purchasing 100 shares of stock at $2,393.89 and selling May 22 $2395 call for $29.70. Over the past 22 days the position has generated a profit of $10,944 (not realized as position is still evolving). AMZN has increased in price to $2,524.06. We have evolved the short call position with two diagonal rolls (May 22, Jun 5) and one vertical roll (May 29).

From May 21 to May 28 profit from the stock was declining and being offset by increased profit from the short call options. Since May 29 the profit from the stock has been increasing, partially offset by losses on the short options. We are being conservative selling ‘in’ the money calls. If we were more aggressive and selling ‘at or out of’ the money calls the position would generate higher net profit but we would give up downside protection.

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.