Stocks and Options » Option

Windstream Corp (WIN) – Sold Nov12 Covered Calls

Bill — Tue, 22 May 2012 18:50:47 +0000

Today, 5/22/12, I sold 3 WIN Nov12 $12.00 Covered Calls for a net deposit of $13.72 in my taxable account. My basis for these WIN shares is now $11.64. This option trade produces a simple return of about .39% and an annualized return of about .80% on my prior basis if held to expiration.

I acquired these WIN shares last Friday when my Puts were in the money at expiration. When I sold those Puts, I wrote the following:

“The last time I sold Puts on Win was in August of 2010. Altogether, I have previously sold Puts on WIN three times. Each time the Put expired worthless. I have yet to actually own any WIN shares. If these shares are assigned to me I intend to sell the next higher strike that provides a reasonable return and hope to be able to catch a dividend or two before the shares are called away.”

So now, I own 300 shares. I had intended to sell the next higher strike above my assigned price but instead opted for the same strike a little closer in. However, I certainly expect to collect at least one dividend in July. The ex-dividend date is June 17.

Speaking of dividends, WIN continues to pay a 25-cent quarterly dividend for about a 10.45% annualized return on its current price. Add an option premium now and then to the dividends and there is a decent annual return.

Hewlett-Packard Company (HPQ) – Sold Nov12 Covered Calls

Bill — Tue, 22 May 2012 00:25:34 +0000

Today, 5/21/12, I sold 4 HPQ Nov12 $29 Covered Calls for a net deposit of $96.94 in an IRA account. My basis for these HPQ shares is now $27.95. This transaction represents a simple return of about .86% and an annualized return of about 1.74% on my prior basis with 180 days to expiration.

I decided to sell the Nov12 option because the nearer term options did not have sufficient premium to make them worthwhile at the $29 strike price. This is tying up a lost of cash in this account but there is nothing for it unless I want to take a loss at this time…which I do not want to do. A little patience and these shares will be back to where I need them to be.

Holding HPQ until November will have the small benefit of collecting some additional dividends. HPQ is recently increased its dividend to .132 per quarter from a previous .12 per quarter. An increasing dividend is generally a good thing.

S&P continues a 12-month price target of $29 and has a Hold recommendation on HPQ. MarketEdge has a price opinion of $24.51 and a Neutral recommendation. The 22 Yahoo Brokers have a 12-month price target of $29.23 and continue a recommendation of 2.6 on a scale where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

Freeport-McMoRan (FCX) – Sold Jul12 Covered Call

Bill — Tue, 22 May 2012 00:11:36 +0000

Today, 5/21/12, I sold 1 FCX Jul12 $39 Covered Call in my taxable Account for a net deposit of $12.24. My basis for these FCX shares is now $37.19. This transaction represents a simple return of about .33% and annualized return of about 1.96%.

This is the next in a continuing series of Covered Call transactions on FCX shares that I purchased and upon which I am selling Covered Calls with the intent that they be called away. In this case, I acquired these FCX shares when my Apr12 $38 Put was assigned to me. I decided to sell the $39 Call to make a little extra when the shares are eventually called away from me. I would like to be selling weekly Calls but FCX is just not cooperating right now.

These FCX trades have worked quite well for me so far. The Covered Calls sometimes expire worthless (not my original intent) but FCX is volatile enough that I am confident that I will eventually sell them at a profit. As long as I can continue to sell near term Covered Calls above my acquisition price I do not care if they are ever called away.

S&P currently has a 12-month price target of $46 on FCX with a Buy recommendation. MarketEdge continues a price opinion of $38.56 and an Avoid recommendation. The 19 Yahoo analysts have a 1-year price target of $52.86 and a 1.8 recommendation where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

Alpha Natural Resources Inc (ANR) – Sold Jun12 Covered Call

Bill — Mon, 21 May 2012 21:15:59 +0000

Today, 5/21/12, I sold 3 Jun12 $14 Covered Calls for a net deposit of $43.73 in an IRA account. This transaction represents a simple return of about .94% and an annualized return of about 13.23% with 26 days left to expiration. My basis for these ANR shares in is now $15.28.

I wanted to sell the weekly $16 Covered Call but there was just no money in it at this time. As it is, I had to go down to the $14 strike to be able to sell the Jun12 Calls at a reasonable rate. These Calls leave me underwater on these ANR shares so I don’t want them called away just yet. I am making a small bet here that ANR will not recover above $14 in the next month and that these Calls will expire worthless. I can then sell the Covered Calls on these shares at least one more time. If necessary, I will be able to roll these Calls out and up.

ANR does not pay a dividend so these ANR shares are most definitely a trade and not an investment. S&P has a 12-month price target of $18 and a hold recommendation on ANR. MarketEdge has a price opinion of $13.16 and an Avoid recommendation. The 23 Yahoo analysts covering ANR are more optimistic with a 12-month price target of $21.78 and a recommendation of 2.1 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

Chesapeake Energy Corp (CHK) – Sold May 25, 2012 Weekly Put

Bill — Mon, 21 May 2012 21:01:53 +0000

Today, 5/21/12, I sold 1 CHK May 25, 2012, $14 Weekly Put for a net deposit of $9.24 in an IRA account. My basis for these CHK shares, if put to me, would be about $13.96. This transaction represents a simple return of about .66% and an annualized return of about 55.46% on my potential basis with 4 days to option expiration.

This is the second time that I have sold the $14 Put on CHK in this account. I am considering this the second of a potential series of trades and as such, I accumulate the option premium from each trade to reduce my potential basis.

I would have preferred to sell the $15 Put but just do not have enough available cash in this account to cover that. Even so, the $14 Put has a pretty good return, especially if it expires worthless. If assigned, I will begin to sell Covered Calls and perhaps, try to own the stock for a considerable length of time.

CHK pays a .0875 quarterly dividend for about a 2.35% 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 if it is assigned to me. On the other hand, I can certainly roll out the Put later this week if it appears that the price may pull back more than I am willing to accept in order to reduce my potential future basis.

S&P continues a 12-month price target of $20 and a Hold recommendation. MarketEdge continues a price opinion of $19.95 and an Avoid recommendation. The 28 Yahoo Analysts have a mean 12-month price target of $23.04, down slightly from $23.88 last week, and a recommendation of 2.4 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.