Today, 4/23/13, I sold 12 ALSK Oct13 $2.50 Covered Calls for a net deposit of $34.82 in two IRA accounts.  There are 179 days to expiration.  The details follow.

I sold 4 in an IRA Account for a net deposit of $8.94.  This transaction represents a simple return of about .19% and an annualized return of about .38%.  My basis for these shares is now $11.98.

I sold 8 in another IRA Account for a net deposit of $25.88.  This transaction represents a simple return of about .30% and an annualized return of about .61%.  My basis for these shares is now $10.79.

Last year I contemplated adding an additional 100 shares to the lot of four to reduce my basis, which would also increase my dividend yield.  At the time I felt a little uneasy about ALSK.  There has been a lot of debate about ALSK, most of which was negative or neutral at best.  So, in the end, as tempting as it was, I decided not to add additional exposure at that time.  Now, I am glad that I did not add the additional shares.  ALSK has fallen from being a $7 to $8 stock to being a sub $2 stock.  The most obvious reason was the dividend cut to .05 from .22 quarterly.  Then the dividend was cut entirely, the last one being paid in September 2012.

I will try to roll these Calls out if they are in the money by October but I am prepared to let them go if I am not able to roll for a net deposit.  I suspect that they will expire worthless though.

S&P has a 12-month price target of $2.50 and has a Hold recommendation while MarketEdge has a price opinion of $1.69 with a Neutral recommendation.  The 1 YHOO broker has a 12-month price target of $1.00 and a rating of 3.7 where 1.0 is a strong sell and 5.0 is a string buy.

Most of the stocks that I own and write Covered Calls upon also pay dividends.  Dividends occur on a regular basis and add significantly to my annual investment income.  Year to date I have received a total of $9,129.59 in dividends in my various accounts.  My year to date average monthly dividends received is currently $912.96.  The year-to-date dividends currently represent about 34.29% of my average monthly investment cash flow and about 2.28% return on my current basis value.

My YTD dividends are up by $125.05 on a monthly average from last year.  That represents an 15.87% increase to date year over year.  I attribute the increased average dividends to a few companies raising their dividends and to my purchasing additional dividend paying stocks.  During August, I received notice of the following dividends paid in various accounts for a total of $1,253.76.

Please notice that PGF and PGH both pay monthly dividends.  The annualized dividend yield for the monthly dividend payers is based upon the simple and false assumption that they will pay the same dividend each month for the next 12 months.  The actual annualized dividend yield may be more or less than illustrated here.

ANH, MFA and NLY are mortgage REITs that make their money on interest rate spreads.  Their current high annualized dividend yields on my basis are probably at risk when the Fed begins to raise its discount rates.  As of this writing, my current basis, excluding dividends, for some of these stocks is now below their current market price, which increases my yield on those stocks.  From time to time, I attempt to sell Covered Calls on these stocks to reduce my basis, which, to some extent, will help mitigate any possible future reduction in their dividend payouts.  I find myself just holding some of these stocks while I wait for their price to rise to a point that I am comfortable selling new Covered Calls.  If I do not sell new Covered Calls I am content to capture the nice dividend for an indefinite period.  Notably, PGF, NLY, ANH and MFA fall into this category.

I use my basis per share to determine the simple and annualized percentage return because I feel that it gives me a better representation of the value of the dividends as they relate to my portfolio.  My basis may be above or below the market price which causes my return to be lower or higher than published yields for a stock.  I calculate my basis per share as my acquisition price less any option premiums received on those shares.  I do not use dividends to reduce my basis.

Yesterday, 10/22/12, I sold 12 ALSK Apr13 $2.50 Covered Calls for a net deposit of $94.87 in two IRA accounts, eight in one and four in the other.  My basis for these ALSK shares is now $10.83 and $12.01 respectively, excluding dividends received.  These transactions represent simple return of about .76% and an annualized return of about 1.53% for the eight contracts and a simple return of about .60% and an annualized return of about 1.21% on the four contracts.

Last year I contemplated adding an additional 100 shares to the lot of four to reduce my basis, which would also increase my dividend yield.  At the time I felt a little uneasy about ALSK.  There has been a lot of debate about ALSK, most of which was negative or neutral at best.  So, in the end, as tempting as it was, I decided not to add additional exposure at that time.  Now, I am glad that I did not add the additional shares.  ALSK has fallen from being a $7 to $8 stock to being a mid $2 stock.  The most obvious reason was the dividend cut to .05 from .22 quarterly.  At .05 the yield on my basis is now 1.83% for the 800 shares where it had been better than 7.21%.

I will try to roll these Calls out if they are in the money by April but I am prepared to let them go if I am not able to roll for a net deposit.  I suspect that they will expire worthless though.

S&P has a 12-month price target of $3.00 and has a Hold recommendation while MarketEdge has a price opinion of $2.34 with a Long recommendation.  The 3 YHOO brokers have a 12-month price target of $2.67 and a rating of 3.0 where 1.0 is a strong sell and 5.0 is a string buy.