Many of the stocks that I own and write Covered Calls upon also pay dividends.  Dividends happen on a regular basis and add significantly to my annual investment income.  Year to date I have received a total of $2,557.63 in dividends in my various accounts for 2010.

I received notice of the following dividends paid in various IRA accounts for a total of $298.00:

I use my basis per share, excluding dividends, 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.

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, 1/11/10, I BTC 6 BVF Jan10 15 Covered Calls and STO 6 BVF Jul10 17.50 Covered Calls, 4 in one IRA account and 2 in another IRA account, for a net deposit of $30.82.  My basis for these BVF shares is now 14.54 and 18.42 respectively, excluding dividends received.

I am fell so-so on BVF at this time.  One of the main reasons is that they cut their dividend to .09 from .375 per quarter in May 2009.  That dropped my yield to 2 to 2.5% from 8.5 to 10.75% for the two sets of stock.  I trust that the dividend will move back up to the higher levels one day.  In the mean time, I continue to decrease my basis each time I sell a new Covered Call.

Speaking of Covered Calls and BVF, another reason that I am not as happy with BVF right now is that the option premiums on it seem to be lower that before or I need to go further out to get a decent premium.  I just looked back at my tracking spreadsheet and see that my real problem is that I keep needing to roll BVF out.  I have been doing that since Nov 2008 and gradually raiding my strike price to 17.50 from 10.  I guess, with that consideration I am happier than I thought.  Now, if the dividend would just increase…