Today, Mar 1, 2010, I BTC 2 IR Mar10 30 Covered Calls and STO 2 IR Jan11 32.50 Covered Calls for a net deposit of $176.93 in an IRA account.  My basis for these IR shares is now 48.58, excluding dividends received.

These transactions not only increased my strike price by $2.50 but also allowed me to lock in a profit on the Calls I closed of $264.94 because I was able to BTC them for less than I originally sold them for.  I always like when that happens but would have preferred for them to expire worthless.

I’ve been watching IR for the past month hoping it would fall below and stay below $30 so that my Mar10 30 Calls would be able to expire worthless.  I’ve also been watching for an opportunity to roll the Mar10 calls out at a net credit.  The latter condition has been true for a little while now but with the stock starting to move up again it began to become more difficult to do without rolling all the way out to 2012.  And, I am pretty convinced that IR will not be below my old Mar10 30 strike when options expire this month.  Thus, my decision to roll IR out now.

S&P currently has a 12 month price target of $40 for IR.  If they are right I will need to roll IR out again before Jan11 expiration.

IR pays a small .07 per quarter dividend which is about .5% annual yield on my basis.  That is not stellar.  IR’s dividend was .18 per quarter as recently as May 2009.  Even at .18 IR’s dividend is not great.  Over time, unless called away sooner, my basis will decline as I continue to sell new Covered Calls and the dividend yield on my basis will improve.  The Call option premium will also increase my actual return on my investment in the stock

Today, Feb25, 2010, I sold 2 BVF Jul10 12.50 Puts for a net deposit of $98.46 in an IRA account.  My basis for these shares, if Put to me, will be 12.01.

BVF does not have a stellar yield but it does currently return about 2.49%.  That is .09 per quarter and is down from .375 per quarter a year ago.  I am hopeful that the quarterly dividend will one day approach the prior levels.

I already own 600 shares of BVF in 2 IRA accounts, 200 of which are in the account that I sold these new Puts.  I chose to sell the Jul10 Puts for a few reasons.

I already have BVF Covered Calls expiring in this account in July.  Lately, I have begun to try to sell new Puts on stocks that I own for the same months that I already have Calls expiring for that stock.  That way, if I am assigned the Puts I will be able to sell new Covered Calls on all of the shares owned in that account which reduces per share transaction costs.

My second reason for selling the Jul10 Puts is that the 12.50 strike price is $2 below the current stock price and the option premium provides an additional .55 per share cushion should the stock to fall before I would be underwater if the stock is assigned to me.  The current basis for the BVF shares I own in this account is 18.42.  The assignment of these shares would reduce my average basis by about $4 per share.

A third reason is that these options provide me with a 10.13% annualized return on the capital reserved to cover the potential assignment.  That is not the best return I have ever made but in conjunction with other considerations noted above I am happy with it.

Yesterday, Feb 23, 2010, I sold 4 NLY Jul10 19 Covered Calls for a net deposit of $90.94 in an IRA account.  My basis for these NLY shares is now 17.42, excluding dividends received.

I have been an owner of NLY shares for some time.  I had 400 shares called away in Dec09 at 17.50 when my basis was 11.41, excluding dividends received.  I quickly purchased an additional 400 shares at 17.80 and began to again reduce my basis by selling Covered Calls at the $19 strike price.  The current transaction is my second selling at that strike price.

NLY pays a very good dividend, .75 last quarter, which represents an annual yield of about 16.76%.  NLY has raised its dividend each of the prior 4 quarters.  There is of course no guarantee that the dividend will continue at that level.  In fact there is some discussion that the profitably of the company may reduce once the Fed begins to increase the interest rates.