Belated: New EK calls sold

November 8th, 2009 · No Comments

I’ve been *real* busy the last couple weeks and am finally getting a chance to catch my breath and post a few things to my blog.  Since I’m trying to use my blog as a record of my attempts to grow my “Geographic Independent”-qualified income, and I’m still selling covered calls in my quest to learn about options trading, that means I should have written about my recent trades already.  Better late than never I guess.

I don't even think Kodak makes this anymore

I don't even think Kodak makes this anymore

If you’ve been reading my blog, you’ll know that October expiration left me holding 300 shares of Eastman Kodak (EK) at an unrealized loss.  I was trying to decide whether to sell new calls or simply liquidate, taking my losses, and move on to something else.   Well, I ended up selling new calls, but that’s primarily because I couldn’t identify any better opportunities.   Unfortunately, that’s likely more because I didn’t spend enough time researching than anything else.  Which, in itself, should qualify as a lesson learned: don’t put money into things because you’re “settling” due to lack of time to find something better.

So what happened?  Well, I actually completed other trades, which I haven’t written about yet, first.  So my actions on EK were delayed by about 3 to 4 trading days after October expiration.  At that point, EK had already fallen quite a bit and premiums for Nov $5 strikes were rather low.  Hoping (hey, there’s my error!) that things would bounce back a bit, I ended up placing a $0.35 limit order to STO three calls (I had 300 shares and one call is 100 shares).  Unfortunately, after another 3 to 4 trading days, the bounce had never come and in fact EK had fallen even lower.  I tried a $0.25 limit order for another 3 to 4 days with the same result – no takers.

At this point, EK was trading for well under $4.00 and the last trades on the $5 strikes were $0.05.  So I ended up trying to decide on selling either Dec $5 strikes, or Nov $4 strikes.  If I did the latter, and EK was over $4 at Nov expiration, I’d actually take a realized loss on the whole EK two-month position, but at least I’d be out of my position and have hopefully learned something along the way.  If I did the former, I’d be locked into EK for a total of two months while having only collected around $100 for the new calls.  And worse IMO, only if EK rose to $5 would I be forced to exit.  And I’d still have an overall (but unrealized) loss if EK was trading below about $4.30 at Dec expiration.

After spending a bit of time researching EK itself, and not finding anything in particular that gave me great hope of a $5 trading price by December, and also considering how earnings season was shaping up, I decided to go with the Nov $4 strikes with a $0.25 limit order.   Here’s the summary of the actual trade done.  Like usual, I’m including my actual commissions which explains why some numbers go out to fractions of a cent.

EK & EK JA: Critical dates
2009.10.17: Initial position: Holding 300 EK @ $4.62
2009.10.28: Sold call option: STO 3 EK KQ (Nov09 $4.00) @ $0.22697

Summary, if NOT called (static return):
Days position held: 24
Capital investment: $1386.00
Income received: $68.09
Percent return: 4.91%
Annualized yield: 107.38%

Summary, if CALLED at expiration:
Days position held: 24
Capital investment: $1386.00
Net profit if called: -$122.86
Percent return if called: -8.86%
Annualized yield if called: -75.63%

As I write this, EK has jumped up over the last couple days and closed on Friday at $4.23.  I’m not planning on taking any action on this position between now and expiration, unless EK drops and I can buy my calls back at $0.05.   I expect EK to range between the low $4’s and mid $3’s during that time.

Tags: Trades

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