Today, 7/5/12, I bought 400 shares of CHK and sold 4 CHK July 13, 2012, $20 Covered Calls, in an IRA account, for a net deposit of $192.96 option premiums. I purchased these shares for $19.97, including transaction costs. My basis for these CHK shares is now $19.49. This transaction represents simple returns of about 2.97%% and annualized returns of about 129.03%/21.93% on my basis with 8 days to option expiration.
I have been selling Puts on CHK for several months now. This time I decided to buy the shares and sell the Covered Calls. One reason is that the pricing was right to provide a good return and potentially get back to cash in just a few days. A potential bonus is that I may also collect some dividends as CHK goes ex-dividend on July 12, the day before option expiration.
If these Calls expire worthless next week I will see about selling the $20 strike Calls expiring the following week. I expect that my cash flow from these CHK transactions will be almost totally from the option premiums. Although, CHK has been recovering nicely in recent weeks so I may be able to sell the $21 strike next time and try to gather some additional capital gain cash flow.
CHK pays a .0875 quarterly dividend for about a 1.78% annualized return at the current price. Add the option premiums available to the dividends and there is a pretty good annual return on the investment.
S&P continues a 12-month price target of $20 and a Hold recommendation on CHK. MarketEdge has a price opinion of $18.60 and a Long recommendation. The 27 Yahoo Analysts have a mean 12-month price target of $23.56 and a recommendation of 2.4 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.