Trade: AA & AA IO covered call

September 3rd, 2009 · 2 Comments

Early last week, I executed a number of covered call trades but didn’t get around to writing about them until now.  Here’s a summary of the first one, a covered call with Alcoa (AA) and a bullish Sept $13 call (AA IO)

Given that my August call option on AA expired rather than getting assigned, and that I’ve posted before about a bullish belief in AA, I went looking to sell at least the $13 strike for Sept.  As I mentioned previously, the Sept $13 strike was at about an bid of $0.50 during August’s expiration weekend, whereas the $14 was less than half that, so I entered an STO order for the $13 hoping it wouldn’t change much.  Unfortunately, it did, and I began a process of chasing it down, entering asks at the bid/ask midpoint throughout Monday, Tuesday, and Wednesday.   I was hoping to catch things in an uptick, but that just didn’t happen.  If I had simple entered an order for exactly the bid on Monday morning, I would have done much better for myself.  Eventually, I gave up the chase (of course, just before things temporarily swung back my way) and did just that.  Note to self, if you see an acceptable deal, take it and don’t get too greedy.

Here’s the analysis of the trade that I actually completed.  As before, I’ve included all commissions in the prices which is why I go out to fractions of a cent.  And I’m using the ex-dividend date as the date of record for the dividend.

Critical Dates:
2009.08.26: Initial position: HOLD 200 AA @ $11.65
2009.08.26: Initial call option: STO 2 AA HL (Sep09 $13) @ $0.21875 (after commissions)
No dividend expected before expiration.

Summary, if NOT called (static return):
Days position held: 24
Capital investment: $2330.00
Income received: $43.75
Percent return: 1.88%
Annualized yield: 32.70%

Summary, if CALLED at expiration:
Days position held: 24
Capital investment: $2330.00
Income received: $43.75
Net profit if called: $308.80
Percent return if called: 13.25%
Annualized yield if called: 563.77%

At yesterday’s close of $11.55, I’m just barely staying ahead of my updated call basis of $11.43 after this trade.

Tags: Trades

2 responses so far ↓

  1. 1 Rich // 2009.09.04 at 8:10 pm

    “Note to self, if you see an acceptable deal, take it and don’t get too greedy.”

    Lol! You’re learning….

  2. 2 davmp // 2009.09.23 at 2:20 am

    @Rich: Learning, and hopefully not too slowly. (Delayed response due to being out on vacation for a couple weeks.)

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