- Transaction Date = 20090211
- Ticker = (BAC)
- Company Name = BK OF AMERICA CP
- Number of shares purchased = 5000
- Price per share = 6.07
- Total money spent = 30350.0
- Call Symbol = BYOCD
- Number of sold calls = 50
- Strike price = 4.0
- Strike date = 20090320
- Call premium = 2.49
- Total money received = 12450.0
- Max. days for which position may stay open = 38
- Initial investment = 17900.0
- Absolute return = 2100.0
- Percentage return = 11.73%
- Annualized percentage return = 112.66%
- Break even price point = 3.58
- Break even buffer percentage = 41.02%
Stock Leg (Buy)
Total money spent = price per share * number of shares
Total money spent = 6.07 * 5000 = 30350.0
Option Leg (Sell)
Total money received = number of sold calls * 100 * call premium
Total money received = 50 * 100 * 2.49 = 12450.0
Transaction
Initial investment = Total money spent - Total money received
Initial investment = 30350.0 - 12450.0 = 17900.0
ROI calculations (If calls get exercised)
Money received upon exercise = (number of sold calls * 100 * strike price)
Money received upon exercise = 50 * 100 * 4.0 = 20000.0
Absolute returns = Money received upon exercise - Initial investment
Absolute returns = 20000.0 - 17900.0 = 2100.0
Percentage returns = 100 * (Absolute Returns/Initial investment)
Percentage returns = 100 * (2100.0/17900.0) = 11.73%
Annualized percentage returns = Percentage returns * 365/Max. days for which position may stay open
Annualized percentage returns = 11.73 * 365/38 = 112.66%
Break Even Information
Break-even point = Initial investment / Number of shares
Break-even point = 17900.0 / 5000 = 3.58
Break-even buffer percentage = 100 * (Current price - Break-even point) / Current price
Break-even buffer percentage = 100 * (6.07 - 3.58) / 6.07 = 41.02%
This means that this position can weather a 41.02% drop in stock's price before losing any money.
The position will be watched closely and liquidated if it starts to hover around the break even point. A fall in the stock price till the strike price is expected to be compensated linearly by corresponding fall in the option's premium (thereby maintaining a balance and avoiding drastic losses if liquidity is desired).
The current portfolio details can be accessed here.
Disclaimer: The content of this blog is for informational and educational purposes only. If you invest using information contained here, do so at your own risk. Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options.
1 comment:
I too am a covered call writer and have been using this methodology for 2.5 years now as my only means of trading. I find that it is the most consistent means of making money. Sure, not a lot, but almost every month I am up 8-10%. Try and match that S&P or Mr. Dow!
Looking at your trades, I think that you will find it better if you don't sell calls so far out. I try to limit mine to 2-4 weeks. Sure I don't make 10-20% per trade, but I limit the risk of time by taking a smaller gain and do it more frequently and hopefully have a higher percentage get called out.
Another suggestion is to not use so much of you money on just a few trades. Limit each trade to 10% of you total account value.
Also, I like to keep some cash on hand for the week of expiration (like this week) just in case something attractive pops up and I can pocket 3-4% in a few days.
I may come back in the future to see how you are doing.
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