I had two covered call positions waiting on August expiration, which was Saturday.  My AA HO (Aug 09 $13 strike) almost certainly expired as AA closed at $12.56 on Friday — I just can’t be sure until Monday morning given past experiences with TradeKing notification.  And I’ve received assignment notification on the short-term JGL HY (Aug 09 $27.50) play even though HD closed at exactly $27.50 Friday.  Not quite sure why some one would exercise that, but they did.  So what do I do next?

One call assigned, so back to cash

To be fair, TradeKing has removed the AA HO option from my account summary page, but the Activity page doesn’t show a line item for it’s expiration.  Given that this is the first time I might have ever had a call option simply expire in a TradeKing account, I’m not sure if they ever show expiration as activity line items.  Safest to wait until Monday morning and just plan for both possibilities — starting out holding 200 shares of AA or being liquidated to cash.  It’s worth pointing out that my cost basis on the AA is $11.65, so even if the call wasn’t assigned, I can still sell the shares for a profit.  Using Friday’s closing price of $12.56, I’d be up $183.29 for the round trip, or a 7.87% return.  Over the 32 days for which the capital was locked up in this trade, that would be a 137.22% annualized yield.  However, given my bullish belief in AA (yes even though the news is reporting high inventories of aluminum) I’d probably only do this if I identified a much better ROI trade for September expiration.

Another possibility is to simply sell new calls against the AA shares.  The similar strike call for AA but with Sept expiration had a bid/ask midpoint of $0.53 on Friday’s close, so selling those would net me about $100 after commissions.  Or you could think of that as lowering my cost basis to $11.15.   If AA exceeded the $13 strike by September expiration, that would be a profit of about $365, a return of about 15.7%.  Given the new 50 days total holding period for the trade, that would be annualized yield of about 189%.  Not bad at all.

Given that I’m bullish on AA, what about looking at the $14 strike instead?  This call had a bid/ask midpoint of $0.225 at Friday’s close, so selling 2 calls would net just under $40 after commissions, lowering my cost basis to $11.45.  In addition, this trade would let me capture some additional upside ($200 worth) should I be right about being bullish.  If the call is assigned, I’d be looking at a profit of about $505 in this case.  The yield of about 21.7% would turn into an annualized yield of around 318%.   But there’s alot more risk of the call not being assigned in this case, and the bulk of the profit comes from that happening.  Otherwise, I’m only collecting an additional $40 of income, or a 1.7% yield (about 24% annualized.)

I’m not sure what to do at this point, but given that I need to research new trades since the HD/JGL HY trade was closed out, I’ll probably wait to decide until I’ve done the research for using that cash and can determine how much capital I can put toward whatever looks good there.   If I feel more confident in something with a higher ROI that could use the full portfolio, it certainly makes sense to sell the AA.   There’s always the chance that I simply do another buy-write with HD and then only need the capital I already have in cash at the moment.