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.
We have been managing a covered call strategy on SDC for well over a year now. The excellent option premiums received when we roll the calls on a weekly basis have resulted in the options generating a profit of $53,309 in addition to the $90,921 generated by the stock..
The graph below illustrates the daily profit of the stock and options. It covers the period starting Jan 24 when we started with a new tracking system. The blue line on the graph shows the drop in stock profit from over $200,000 in January to under $100,00. Covered calls have offset some of this decline. The red line shows the increase in option profits from a loss to a profit of $60,000. Considering the stock has dropped from over $14 to $11 we are pleased with result (we initially purchased the stock at under $5). It is challenging to find a covered call strategy where both the stock and options are generating profits.
The approach has allowed us to build up a nice long term capital gain we can sell to “titrate” against short term losses generated by rolling up options on other covered call positions.