Monday, March 5, 2012

A Look At Covered Calls - Feb Cycle Catchup

Geez I've been bloody slack at updating this blog. With my business plus looking at properties I've been as busy as a one armed taxi driver with crabs and writing bullshit in the Interwebs has taken a back seat.

Anyways time to catch up on how my covered call project is doing so I'm harking back to February expiry here to detail the trades I recorded at that time. Firstly my normal lead in:

This is an update of my A Look at Covered Calls - The Naked Truth project. A hypothetical portfolio of systematic covered call writing (AKA synthetic naked put writing).

GS First

The Friday before expiry GS was trading above our 115 strike so with GS at 115.49 I closed out the 115 call so there was no risk of assignment. I am making the assumption that these are long term holdings and that we don't want assignment, which will precipitate a capital gains tax event. I paid 91c on the ask and lo! We actually made some cash profit on the call.

So with GS our CC strategy has under-performed in the first two cycles by greater than 10% which is to be expected as the stock was still basically on a rip. It was the sideways movement after the last roll where we ended getting some cash from the short put.

I wrote the March 115 for $3.95


This one expired slightly out of the money with the stock at $44.09, pay dirt as far as income from short calls is concerned and with no rolls during the cycle, pretty simple, we got a buck fifty two and put it straight in the bank.

By virtue of the underlying going sideways all month, ending a buck or so down and getting reasonable premium for the call, the FCX CC strategy has done quite well this month, trimming back about half of the under-performance against just holding stock. Which of course means the CC has outperformed this month. This shows the best use of covered calls in a portfolio, when the stock is going sideways.

If only we knew that in advance.... :-P

I wrote the March 44 for $1.31


For some reason I can't remember, I closed this one out on the Thursday before expiry with the stock in the money at $84.07, the loss of intrinsic value eating up the gain from extrinsic value, plus a bit; thus taking yet another loss on the short calls. Our under-performance on NOV has been worst of all with the stock increasing at a strong clip over the two months I've been doing this simulation at -15%

We're still 15.4% up, but just holding stock we would have been up 30%. Worse still, if we are not operating on a margin account, we would have received no income from this and in fact would have taken away from our cash position. 

The seminar cretins didn't tell you that did they.

I wrote the March 85 for $2.57

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