September ’09 option expiration summary

September 24th, 2009 · No Comments

This month, we had three open option positions waiting for September expiration, which was this past Saturday.  I was still out on vacation then, so I’m just checking on things now.  A quick login to TradeKing shows that we’re back to all cash, so clearly all three positions got assigned – our desired result.

Learning to use options for income

Learning to use options for income

This is our desired result because our goal has been to identify short-term covered call opportunities that generate the best return we can find given our feelings of acceptable risk.  The keyword there being short-term.  We want to have our calls assigned so that each month we can identify the next best opportunities.  This idea is predicated on the decay of the time value of call options where the greatest rate of change in value is during the last few days of the option’s life.  This means a call seller can make the most profit by buying just before that time and waiting for either expiration or assignment.  However, because expiration happens only one time a month you can’t just sell calls every few days that expire in days.  The best you can do is sell next month’s call as soon after this month’s expiration as possible, i.e. sell to capture the most premium and hold during the shortest possible period that includes the time of rapid value decline.

So how did we do with September expiration?  Here’s my summary of the round-trip trades we’ve just completed.  As always, I’m including my commissions I paid to TradeKing, which is why some numbers go out to fractions of a cent per share.

AA & AA IO: Critical dates

2009.07.21: Initial position: BTO 200 AA @ $10.65475
2009.07.21: Sold call option: STO 2 AA HL (Aug09 $11.00) @ $0.3387
2009.08.03: Call roll: BTC 2 AA HL / STO 2 AA HO (Aug09 $13.00) @ $1.33255
2009.08.22: Call expiration: 2 AA HO @ $0.00
2009.08.27: Sold call option: STO 2 AA IO (Sep09 $13.00) @ $0.2187
2009.09.19: Assignment: STC 200 AA @ $12.9749

AA & AA IO: Summary

Days position held: 60
Capital investment: $2397.46
Net Profit: $315.00
Percent return: 13.14%
Annualized yield: 111.90%

CNO & CNO IH: Critical dates

2009.08.27: Initial position: BTO 200 CNO @ $4.25475
2009.08.27: Sold call option: STO 2 CNO IH (Sep09 $4.00) @ $0.4987
2009.09.19: Assignment: STC 200 CNO @ $3.9751

CNO & CNO IH: Summary

Days position held: 23
Capital investment: $850.95
Net Profit: $43.81
Percent return: 5.15%
Annualized yield: 121.82%

SVU & SVU IC: Critical dates

2009.08.26: Initial position: BTO 200 SVU @ $14.76475
2009.08.26: Sold call option: STO 2 SVU IC (Sep09 $15.00) @ $0.2387
2009.08.28: Dividend: 200 @ $0.175
2009.09.19: Assignment: STC 200 SVU @ $14.97485

SVU & SVU IC: Summary

Days position held: 24
Capital investment: $2952.95
Net Profit: $124.76
Percent return: 4.22%
Annualized yield: 87.64%

As an overall summary of our covered call experiences, keep in mind my wife and I sold our first covered call back on July 6th, we’ve earned a return of $782.84 on a total investment of $5,722, or 13.68%.   Since it’s been 80 days exactly between July 6th and today, that gives us an annualized yield of 79.51%.   Much, much better than we could have earned in a CD or savings account.

On the other hand, this has been done during a period where almost all stocks are acting like little boats on a vast rising tide.  We definitely could have done better if we’d simply bought the stocks outright and held them for the same periods of time (i.e. month long periods.)  While that fact could be emotionally depressing, I’m choosing to look at this as a very forgiving time to learn to do options trading so that we’ll be able to earn income even if the market isn’t shooting up.

Tags: Options · Trades

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