Sunday, February 24, 2008

Covered Calls - Bullish, Neutral or Bearish?

Many people believe that covered calls only work in a neutral or bullish market or with a neutral or bullish stock. However, in my experience, they also work in a bearish market or with a bearish stock.

Look at the two positions that were closed at the end of Feb options expiration, BBT & KCI. BBT shot up after I bought it and would have made a bigger profit as a buy & hold position. KCI went down after I bought and made more money than a buy & hold position, which would have resulted in a loss.

I've closed over a hundred covered call positions and the story is always the same. When the stock went up after I bought it and was called away, the profit usually would have been better with a buy & hold strategy. When the stock went down after I bought it, the profit was usually better than a buy & hold strategy, which in many cases would have resulted in a loss.

So, from my experience, covered calls outperform buy & hold in a neutral or bearish market/stock, but underperform in a bullish market/stock.

Drawdown

Drawdown, the way I define it, is the difference between the original amount invested in stock plus cash minus the liquidation value plus cash. My acceptable drawdown is 12-24%, the same as my return criteria. My average drawdown since inception has been 12.47%. My current drawdown is 21.68%.

For example, let's say my starting capital is $100,000 and I have have $80,000 invested in stock and $20,000 in cash. If the liquidation value is $56,000, the current account value would be $76,000 ($56,000 + $20,000) for a drawdown of $24,000 ($100,000 - $76,000) or 24%, and a loss of $24,000 ($100,000 - $76,000) or 24% of the starting capital.

Another example, let's say I started out with $100,000 and brought in $50,000 of income, so now I'd have an account value of $150,000. Now let's say $100,000 was invested in stock and $50,000 was in cash. If the liquidation value was $64,000 the current value would be $114,000 ($64,000 + $50,000), for a drawdown of $36,000 ($150,000 - $114,000) or 24%, but an actual gain of $14,000 ($114,000 - $100,000) or 14% of the starting capital.

My current account is more like the second example in that I've never been below my original starting capital. I run with a constant drawdown every month, but don't let it bother me. It's just part of the system. I hold positions for the long term and eventually exit at either breakeven or a profit, with an occassional loss, and over time my account has continued to go up in value.

Some people can't stomach drawdowns or watching their account balance loss value. I don't worry about it because I know that over time my method is profitable. I don't concern myself with short-term account balance fluctuations, since I have no intention of liquidating my account. This is money that I have committed for the long term and have other funds available for emergencies.

Friday, February 22, 2008

MHP - New Position

A new dividend position was established today on MHP. The following is the trade information, including IB commissions:

22-Feb-08 - Initial Stock Position - BTO 100 MHP @ 41.17
22-Feb-08 - Initial Call Option - STO 1 Apr08 40.00 Call @ 2.80
12-Mar-08 - Dividend Received - DIV 100 Dividend @ 0.22

Summary without the dividend if called early on Ex-Dividend date:

Stock Investment: $4,117.00
Income Generated: $280.00
Percent Income Generated: 6.80%
Annualized Income Generated: 827.46%
Net Profit If Called: $163.00
Percent Return If Called: 3.96%
Annualized Return If Called: 481.70%
Days Held: 3 days

Summary with the dividend if called at option expiration:

Stock Investment: $4,117.00
Income Generated: $302.00
Percent Income Generated: 7.34%
Annualized Income Generated: 47.81%
Net Profit If Called: $185.00
Percent Return If Called: 4.49%
Annualized Return If Called: 29.29%
Days Held to Expiration: 56 days

Dividend Information:

Ex-Dividend Date: 02/25/08
Dividend Pay Date: 03/12/08
Dividend Rate: $0.88
Dividend Yield: 2.10%

KEY - New Position

A new dividend position was established today on KEY. The following is the trade information, including IB commissions:

22-Feb-08 - Initial Stock Position - BTO 200 KEY @ 23.05
22-Feb-08 - Initial Call Option - STO 2 Apr08 22.50 Call @ 1.70
14-Mar-08 - Dividend Received - DIV 200 Dividend @ 0.38

Summary without the dividend if called early on Ex-Dividend date:

Stock Investment: $4,609.00
Income Generated: $340.60
Percent Income Generated: 7.39%
Annualized Income Generated: 385.33%
Net Profit If Called: $231.60
Percent Return If Called: 5.02%
Annualized Return If Called: 262.02%
Days Held: 7 days

Summary with the dividend if called at option expiration:

Stock Investment: $4,609.00
Income Generated: $416.60
Percent Income Generated: 9.04%
Annualized Income Generated: 58.91%
Net Profit If Called: $307.60
Percent Return If Called: 6.67%
Annualized Return If Called: 43.50%
Days Held to Expiration: 56 days

Dividend Information:

Ex-Dividend Date: 02/29/08
Dividend Pay Date: 03/14/08
Dividend Rate: $1.50
Dividend Yield: 6.40%

EXBD - New Position

A new dividend position was established today on EXBD. The following is the trade information, including IB commissions:

22-Feb-08 - Initial Stock Position - BTO 100 EXBD @ 41.45
22-Feb-08 - Initial Call Option - STO 1 Apr08 40.00 Call @ 2.95
31-Mar-08 - Dividend Received - DIV 100 Dividend @ 0.44

Summary without the dividend if called early on Ex-Dividend date:

Stock Investment: $4,145.00
Income Generated: $295.00
Percent Income Generated: 7.12%
Annualized Income Generated: 136.72%
Net Profit If Called: $150.00
Percent Return If Called: 3.62%
Annualized Return If Called: 69.52%
Days Held: 19 days

Summary with the dividend if called at option expiration:

Stock Investment: $4,145.00
Income Generated: $339.00
Percent Income Generated: 8.18%
Annualized Income Generated: 53.31%
Net Profit If Called: $194.00
Percent Return If Called: 4.68%
Annualized Return If Called: 30.51%
Days Held to Expiration: 56 days

Dividend Information:

Ex-Dividend Date: 03/12/08
Dividend Pay Date: 03/31/08
Dividend Rate: $1.76
Dividend Yield: 4.20%

ADP - New Position

A new dividend position was established today on ADP. The following is the trade information, including IB commissions:

22-Feb-08 - Initial Stock Position - BTO 100 ADP @ 40.11
22-Feb-08 - Initial Call Option - STO 1 Apr08 40.00 Call @ 1.32
01-Apr-08 - Dividend Received - DIV 100 Dividend @ 0.29

Summary without the dividend if called early on Ex-Dividend date:

Stock Investment: $4,011.00
Income Generated: $132.00
Percent Income Generated: 3.29%
Annualized Income Generated: 63.22%
Net Profit If Called: $121.00
Percent Return If Called: 3.02%
Annualized Return If Called: 57.95%
Days Held: 19 days

Summary with the dividend if called at option expiration:

Stock Investment: $4,011.00
Income Generated: $161.00
Percent Income Generated: 4.01%
Annualized Income Generated: 26.16%
Net Profit If Called: $150.00
Percent Return If Called: 3.74%
Annualized Return If Called: 24.37%
Days Held to Expiration: 56 days

Dividend Information:

Ex-Dividend Date: 03/12/08
Dividend Pay Date: 04/01/08
Dividend Rate: $1.16
Dividend Yield: 2.90%

Thursday, February 21, 2008

WGO - Adjustment

The following adjustment was made today on WGO:

21-Feb-08 - Interim Trade - STO 2 Apr08 22.50 Call @ 0.79 -

Current Position Summary:

Stock Investment: $6,455.00
Income Generated: $1,412.70
Percent Income Generated: 21.89%
Annualized Income Generated: 7.96%
Net Profit If Called: -$542.30
Percent Return If Called: -8.40%
Annualized Return If Called: -3.05%
Days Held to Expiration: 1004 days

Trade History:

19-Jul-05 - Initial Stock Position - BTO 100 WGO @ 34.92 -
19-Jul-05 - Initial Call Option - STO 1 Aug05 35.00 Call @ 1.09 - Expired
22-Aug-05 - Continued Trade - STO 1 Sep05 35.00 Call @ 0.44 - Closed
01-Sep-05 - Buy Back & Roll Out - BTC 1 Sep05 35.00 Call @ -0.06 -
19-Sep-05 - Continued Trade - STO 1 Nov05 35.00 Call @ 0.34 - Closed
03-Oct-05 - Dividend Received - DIV 100 Dividend @ 0.09 -
21-Oct-05 - Buy Back & Roll Down - BTC 1 Nov05 35.00 Call @ -0.06 -
24-Oct-05 - Interim Trade - STO 1 Nov05 30.00 Call @ 0.24 - Closed
14-Nov-05 - Buy Back & Roll Up - BTC 1 Nov05 30.00 Call @ -2.66 -
21-Nov-05 - Continued Trade - STO 1 Jan06 35.00 Call @ 0.99 - Expired
09-Jan-06 - Dividend Received - DIV 100 Dividend @ 0.09 -
23-Jan-06 - Continued Trade - STO 1 Mar06 35.00 Call @ 0.44 - Expired
20-Mar-06 - Dollar Cost Averaging - BTO 100 WGO @ 29.63 -
20-Mar-06 - Combined Cost Basis - $6,455.00 200 @ 32.28 -
20-Mar-06 - Continued Trade - STO 2 Jul05 35.00 Call @ 0.69 - Expired
03-Apr-06 - Dividend Received - DIV 100 Dividend @ 0.09 -
10-Jul-06 - Dividend Received - DIV 200 Dividend @ 0.09 -
24-Jul-06 - Continued Trade - STO 2 Jan07 35.00 Call @ 1.39 - Closed
09-Oct-06 - Dividend Received - DIV 200 Dividend @ 0.10 -
22-Dec-06 - Buy Back & Roll Out - BTC 2 Jan07 35.00 Call @ -0.16 -
22-Dec-06 - Continued Trade - STO 2 Apr07 35.00 Call @ 1.19 - Expired
08-Jan-07 - Dividend Received - DIV 200 Dividend @ 0.10 -
09-Apr-07 - Dividend Received - DIV 200 Dividend @ 0.10 -
23-Apr-07 - Continued Trade - STO 2 May07 35.00 Call @ 0.54 - Expired
21-May-07 - Continued Trade - STO 2 Jun07 35.00 Call @ 0.09 - Expired
19-Jun-07 - Continued Trade - STO 2 Jan08 35.00 Call @ 0.94 - Expired
09-Jul-07 - Dividend Received - DIV 200 Dividend @ 0.10 -
08-Oct-07 - Dividend Received - DIV 200 Dividend @ 0.12 -
24-Jan-08 - Interim Trade - STO 2 Feb08 22.50 Call @ 0.44 - Expired
21-Feb-08 - Interim Trade - STO 2 Apr08 22.50 Call @ 0.79 -

WFC - Adjustment

The following adjustment was made today on WFC:

21-Feb-08 - Continued Trade - STO 1 Mar08 30.00 Call @ 1.84 -

Current Position Summary:

Stock Investment: $3,013.00
Income Generated: $349.00
Percent Income Generated: 11.58%
Annualized Income Generated: 74.17%
Net Profit If Called: $336.00
Percent Return If Called: 11.15%
Annualized Return If Called: 71.41%
Days Held to Expiration: 57

Trade History:

24-Jan-08 - Initial Stock Position - BTO 100 WFC @ 30.13 -
24-Jan-08 - Initial Call Option - STO 1 Feb08 30.00 Call @ 1.34 - Expired
21-Feb-08 - Continued Trade - STO 1 Mar08 30.00 Call @ 1.84 -
01-Mar-08 - Dividend Received - DIV 100 Dividend @ 0.31 -

TGT - Adjustment

The following adjustment was made today on TGT:

21-Feb-08 - Continued Trade - STO 1 Mar08 55.00 Call @ 1.44 -

Current Position Summary:

Stock Investment: $5,937.00
Income Generated: $794.00
Percent Income Generated: 13.37%
Annualized Income Generated: 42.82%
Net Profit If Called: $357.00
Percent Return If Called: 6.01%
Annualized Return If Called: 19.25%
Days Held to Expiration: 114 days

Trade History:

28-Nov-07 - Initial Stock Position - BTO 100 TGT @ 59.37 -
28-Nov-07 - Initial Call Option - STO 1 Dec07 55.00 Call @ 5.66 - Expired
07-Jan-08 - Continued Trade - STO 1 Feb07 55.00 Call @ 0.84 - Expired
21-Feb-08 - Continued Trade - STO 1 Mar08 55.00 Call @ 1.44 -

SNDK - Adjustment

The following adjustment was made today on SNDK:

21-Feb-08 - Interim Trade - STO 2 Mar08 30.00 Call @ 0.24 -

Current Position Summary:

Stock Investment: $10,854.00
Income Generated: $3,649.90
Percent Income Generated: 33.63%
Annualized Income Generated: 17.61%
Net Profit If Called: -$1,204.10
Percent Return If Called: -11.09%
Annualized Return If Called: -5.81%
Days Held to Expiration: 697 days

Trade History:

24-Apr-06 - Initial Stock Position - BTO 100 SNDK @ 59.56 -
24-Apr-06 - Initial Call Option - STO 1 Jul06 57.50 Call @ 7.09 - Closed
06-Jul-06 - Buy Back & Roll Out/Down - BTC 1 Jul06 57.50 Call @ -0.16 -
06-Jul-06 - Dollar Cost Averaging - BTO 100 SNDK @ 48.98 -
06-Jul-06 - Combined Cost Basis - $10,854.00 200 @ 54.27 -
06-Jul-06 - Continued Trade - STO 2 Oct06 55.00 Call @ 3.39 - Expired
23-Oct-06 - Continued Trade - STO 2 Jan07 55.00 Call @ 2.14 - Closed
19-Dec-06 - Buy Back & Roll Out/Down - BTC 2 Jan07 55.00 Call @ -0.16 -
19-Dec-06 - Continued Trade - STO 2 Feb07 50.00 Call @ 1.69 - Closed
06-Feb-07 - Buy Back & Roll Out/Down - BTC 2 Feb07 50.00 Call @ -0.06 -
06-Feb-07 - Interim Trade - STO 2 Apr07 45.00 Call @ 1.39 - Expired
27-Apr-07 - Interim Trade - STO 2 May07 45.00 Call @ 0.84 - Expired
21-May-07 - Interim Trade - STO 2 Jun07 45.00 Call @ 0.98 - Closed
15-Jun-07 - Buy Back & Roll Out/Up - BTC 2 Jun07 45.00 Call @ -1.46 -
15-Jun-07 - Continued Trade - STO 2 Oct07 50.00 Call @ 2.60 - Expired
22-Oct-07 - Continued Trade - STO 2 Nov07 45.00 Call @ 1.64 - Expired
20-Nov-07 - Continued Trade - STO 2 Dec07 40.00 Call @ 0.67 - Expired
14-Jan-08 - Interim Trade - STO 2 Feb08 35.00 Call @ 0.85 - Expired
21-Feb-08 - Interim Trade - STO 2 Mar08 30.00 Call @ 0.24 -

PLCM - Adjustment

The following adjustment was made today on PLCM:

21-Feb-08 - Interim Trade - STO 1 Mar08 25.00 Call @ 0.29 -

Current Position Summary:

Stock Investment: $3,164.00
Income Generated: $502.00
Percent Income Generated: 15.87%
Annualized Income Generated: 27.06%
Net Profit If Called: -$162.00
Percent Return If Called: -5.12%
Annualized Return If Called: -8.73%
Days Held to Expiration: 214 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 PLCM @ 31.64 -
20-Aug-07 - Initial Call Option - STO 1 Sep07 30.00 Call @ 2.55 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 30.00 Call @ 0.34 - Expired
22-Oct-07 - Continued Trade - STO 1 Nov07 30.00 Call @ 0.79 - Expired
20-Nov-07 - Continued Trade - STO 1 Dec07 30.00 Call @ 0.27 - Expired
14-Jan-08 - Interim Trade - STO 1 Feb08 25.00 Call @ 0.78 - Expired
21-Feb-08 - Interim Trade - STO 1 Mar08 25.00 Call @ 0.29 -

PFCB - Adjustment

TThe following adjustment was made today on PFCB:

21-Feb-08 - Interim Trade - STO 1 Mar08 30.00 Call @ 0.74 -

Current Position Summary:

Stock Investment: $3,578.00
Income Generated: $430.00
Percent Income Generated: 12.02%
Annualized Income Generated: 20.50%
Net Profit If Called: -$148.00
Percent Return If Called: -4.14%
Annualized Return If Called: -7.06%
Days Held to Expiration: 214 days

Trade History:

20-Aug-07 - Initial Stock Position - BTO 100 PFCB @ 35.78 -
20-Aug-07 - Initial Call Option - STO 1 Sep07 35.00 Call @ 2.30 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 35.00 Call @ 0.39 - Expired
25-Oct-07 - Continued Trade - STO 1 Jan08 35.00 Call @ 0.22 - Expired
24-Jan-08 - Interim Trade - STO 1 Feb08 30.00 Call @ 0.65 - Expired
21-Feb-08 - Interim Trade - STO 1 Mar08 30.00 Call @ 0.74 -

MDT - Adjustment

The following adjustment was made today on MDT:

21-Feb-08 - Continued Trade - STO 1 Apr08 52.50 Call @ 0.39 -

Current Position Summary:

Stock Investment: $5,272.00
Income Generated: $365.50
Percent Income Generated: 6.93%
Annualized Income Generated: 7.01%
Net Profit If Called: $343.50
Percent Return If Called: 6.52%
Annualized Return If Called: 6.59%
Days Held to Expiration: 361 days

Trade History:

23-Apr-07 - Initial Stock Position - BTO 100 MDT @ 52.72 -
23-Apr-07 - Continued Trade - STO 1 May07 55.00 Call @ 0.19 - Expired
21-May-07 - Continued Trade - STO 1 Jun07 52.50 Call @ 0.59 - Closed
15-Jun-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 52.50 Call @ -0.06
15-Jun-07 - Initial Call Option - STO 1 Jul07 55.00 Call @ 0.49 - Expired
25-Jul-07 - Continued Trade - STO 1 Sep07 55.00 Call @ 0.63 - Closed
27-Jul-07 - Dividend Received - DIV 100 Dividend @ 0.13
21-Sep-07 - Buy Back & Roll Out/Up - BTC 1 Sep07 55.00 Call @ -1.46
21-Sep-07 - Continued Trade - STO 1 Nov07 57.50 Call @ 1.39 - Closed
24-Oct-07 - Buy Back & Roll Down - BTC 1 Nov07 57.50 Call @ -0.06 -
24-Oct-07 - Continued Trade - STO 1 Dec07 52.50 Call @ 0.39 - Expired
26-Oct-07 - Dividend Received - DIV 100 Dividend @ 0.13 -
10-Jan-08 - Continued Trade - STO 1 Feb08 52.50 Call @ 0.79 - Expired
25-Jan-08 - Dividend Received - DIV 100 Dividend @ 0.13 -
21-Feb-08 - Continued Trade - STO 1 Apr08 52.50 Call @ 0.39 -

MCO - Adjustment

The following adjustment was made today on MCO:

21-Feb-08 - Interim Trade - STO 2 Mar08 45.00 Call @ 0.24 -

Current Position Summary:

Stock Investment: $10,649.00
Income Generated: $925.80
Percent Income Generated: 8.69%
Annualized Income Generated: 11.88%
Net Profit If Called: -$723.20
Percent Return If Called: -6.79%
Annualized Return If Called: -9.28%
Days Held to Expiration: 267 days

Trade History:

28-Jun-07 - Initial Stock Position - BTO 100 MCO @ 62.41 -
28-Jun-07 - Initial Call Option - STO 1 Jul07 60.00 Call @ 3.49 - Expired
25-Jul-07 - Continued Trade - STO 1 Aug07 60.00 Call @ 1.54 - Expired
20-Aug-07 - Interim Trade - STO 1 Sep07 55.00 Call @ 0.89 - Expired
10-Sep-07 - Dividend Received - DIV 100 Dividend @ 0.08 -
24-Sep-07 - Interim Trade - STO 1 Oct07 55.00 Call @ 0.24 - Expired
25-Oct-07 - Dollar Cost Averaging - BTO 100 MCO @ 44.08 -
25-Oct-07 - Combined Cost Basis - $10,649.00 200 @ 53.25 -
25-Oct-07 - Continued Trade - STO 2 Dec07 55.00 Call @ 0.29 - Expired
10-Dec-07 - Dividend Received - DIV 200 Dividend @ 0.08 -
24-Jan-08 - Interim Trade - STO 2 Feb08 40.00 Call @ 0.89 - Expired
21-Feb-08 - Interim Trade - STO 2 Mar08 45.00 Call @ 0.24 -

LM - Adjustment

The following adjustment was made today on LM:

21-Feb-08 - Interim Trade - STO 1 Mar08 75.00 Call @ 0.64 -

Current Position Summary:

Stock Investment: $9,109.00
Income Generated: $1,023.00
Percent Income Generated: 11.23%
Annualized Income Generated: 17.22%
Net Profit If Called: -$586.00
Percent Return If Called: -6.43%
Annualized Return If Called: -9.87%
Days Held to Expiration: 238 days

Trade History:

27-Jul-07 - Initial Stock Position - BTO 100 LM @ 91.09 -
27-Jul-07 - Initial Call Option - STO 1 Aug07 90.00 Call @ 3.49 - Expired
20-Aug-07 - Continued Trade - STO 1 Sep07 90.00 Call @ 2.09 - Expired
24-Sep-07 - Continued Trade - STO 1 Oct07 90.00 Call @ 0.47 - Expired
15-Oct-07 - Dividend Received - DIV 100 Dividend @ 0.24 -
25-Oct-07 - Continued Trade - STO 1 Dec07 85.00 Call @ 2.09 - Expired
31-Dec-07 - Dividend Received - DIV 100 Dividend @ 0.24 -
07-Jan-08 - Interim Trade - STO 1 Feb08 80.00 Call @ 0.97 - Expired
21-Feb-08 - Interim Trade - STO 1 Mar08 75.00 Call @ 0.64 -

FTEK - Adjustment

The following adjustment was made today on FTEK:

21-Feb-08 - Interim Trade - STO 1 Mar08 22.50 Call @ 0.44 -

Current Position Summary:

Stock Investment: $2,839.00
Income Generated: $407.00
Percent Income Generated: 14.34%
Annualized Income Generated: 18.96%
Net Profit If Called: -$182.00
Percent Return If Called: -6.41%
Annualized Return If Called: -8.48%
Days Held to Expiration: 276 days

Trade History:

19-Jun-07 - Initial Stock Position - BTO 100 FTEK @ 28.39 -
19-Jun-07 - Initial Call Option - STO 1 Dec07 30.00 Call @ 3.29 - Expired
07-Jan-08 - Continued Trade - STO 1 Feb08 25.00 Call @ 0.34 - Expired
21-Feb-08 - Interim Trade - STO 1 Mar08 22.50 Call @ 0.44 -

EXP - Adjustment

The following adjustment was made today on EXP:

21-Feb-08 - Interim Trade - STO 2 Apr08 40.00 Call @ 0.84 -

Current Position Summary:

Stock Investment: $10,854.00
Income Generated: $1,926.55
Percent Income Generated: 17.75%
Annualized Income Generated: 8.93%
Net Profit If Called: -$929.45
Percent Return If Called: -8.56%
Annualized Return If Called: -4.31%
Days to Expiration: 725 days

Trade History:

24-Apr-06 - Initial Stock Position - BTO 100 EXP @ 70.60 -
24-Apr-06 - Initial Call Option - STO 1 May06 65.00 Call @ 8.29 - Expired
22-May-06 - Continued Trade - STO 1 Oct06 60.00 Call @ 2.39 -
20-Jul-06 - Dividend Received - DIV 100 Dividend @ 0.18 -
25-Jul-06 - Buy Back & Roll Out/Down - BTC 1 Oct06 60.00 Call @ -0.21 - Closed
25-Jul-06 - Interim Trade - STO 1 Jan07 50.00 Call @ 2.19 - Closed
23-Oct-06 - Buy Back & Roll Down - BTC 1 Jan07 50.00 Call @ -0.26 -
23-Oct-06 - Interim Trade - STO 1 Jan07 40.00 Call @ 1.34 - Closed
02-Nov-06 - Dividend Received - DIV 100 Dividend @ 0.18 -
19-Dec-06 - Buy Back & Roll Out/Up - BTC 1 Jan07 40.00 Call @ -3.41 -
19-Dec-06 - Interim Trade - STO 1 Jul07 45.00 Call @ 4.39 - Closed
05-Jul-07 - Buy Back & Roll Out/Up - BTC 1 Jul07 45.00 Call @ -5.41 -
05-Jul-07 - Interim Trade - STO 1 Jan08 55.00 Call @ 3.29 - Closed
20-Jul-07 - Dividend Received - DIV 100 Dividend @ 0.20 -
24-Oct-07 - Buy Back & Roll Down - BTC 1 Jan08 55.00 Call @ -0.16 -
24-Oct-07 - Dollar Cost Averaging - BTO 100 EXP @ 37.94 -
24-Oct-07 - Combined Cost Basis - $10,856.00 200 @ 54.28 -
24-Oct-07 - Interim Trade - STO 2 Jan08 45.00 Call @ 0.69 - Expired
05-Nov-07 - Dividend Received - DIV 100 Dividend @ 0.20 -
24-Jan-08 - Interim Trade - STO 2 Feb08 35.00 Call @ 1.29 - Expired
21-Feb-08 - Interim Trade - STO 2 Apr08 40.00 Call @ 0.84 -

DHI - Adjustment

The following adjustment was made today on DHI:

21-Feb-08 - Interim Trade - STO 3 Mar08 17.50 Call @ 0.39 -

Current Position Summary:

Stock Investment: $8,777.00
Income Generated: $1,637.05
Percent Income Generated: 18.65%
Annualized Income Generated: 7.07%
Net Profit If Called: -$1,889.95
Percent Return If Called: -21.53%
Annualized Return If Called: -8.16%
Days Held to Expiration: 963

Trade History:

01-Aug-05 - Initial Stock Position - BTO 100 DHI @ 40.18 -
01-Aug-05 - Initial Call Option - STO 1 Aug05 40.00 Call @ 1.29 - Expired
19-Aug-05 - Dividend Received - DIV 100 Dividend @ 0.09 -
22-Aug-05 - Continued Trade - STO 1 Oct05 40.00 Call @ 0.54 - Closed
05-Oct-05 - Buy Back & Roll Out/Down - BTC 1 Oct05 40.00 Call @ -0.11 -
24-Oct-05 - Interim Trade - STO 1 Nov05 35.00 Call @ 0.49 - Closed
31-Oct-05 - Dividend Received - DIV 100 Dividend @ 0.09 -
18-Nov-05 - Buy Back & Roll Out/Up - BTC 1 Nov05 35.00 Call @ -0.31 -
21-Nov-05 - Continued Trade - STO 1 Dec05 40.00 Call @ 0.34 - Expired
09-Jan-06 - Continued Trade - STO 1 Jan06 40.00 Call @ 0.49 - Expired
23-Jan-06 - Continued Trade - STO 1 Feb06 40.00 Call @ 0.69 - Expired
10-Feb-06 - Dividend Received - DIV 100 Dividend @ 0.10 -
21-Feb-06 - Continued Trade - STO 1 Apr06 40.00 Call @ 0.44 - Closed
23-Mar-06 - Buy Back & Roll Out - BTC 1 Apr06 40.00 Call @ -0.11 -
23-Mar-06 - Continued Trade - STO 1 Aug06 40.00 Call @ 0.94 -
19-May-06 - Dividend Received - DIV 100 Dividend @ 0.10 -
23-May-06 - Buy Back & Roll Out/Down - BTC 1 Aug06 40.00 Call @ -0.11 - Closed
23-May-06 - Dollar Cost Averaging - BTO 100 DHI @ 26.89 -
23-May-06 - Combined Cost Basis - $6,706.00 200 @ 33.53 -
23-May-06 - Continued Trade - STO 2 Jan07 35.00 Call @ 1.04 -
25-Jul-06 - Buy Back & Roll Down - BTC 2 Jan07 35.00 Call @ -0.16 - Closed
25-Jul-06 - Dollar Cost Averaging - BTO 100 DHI @ 20.70 -
25-Jul-06 - Combined Cost Basis - $8,777.00 300 @ 29.26 -
25-Jul-06 - Interim Trade - STO 3 Jan07 25.00 Call @ 0.99 - Closed
01-Nov-06 - Dividend Received - DIV 300 Dividend @ 0.15 -
19-Dec-06 - Buy Back & Roll Up - BTC 3 Jan07 25.00 Call @ -2.36 -
19-Dec-06 - Continued Trade - STO 3 Jan08 30.00 Call @ 2.74 - Expired
09-Feb-07 - Dividend Received - DIV 300 Dividend @ 0.15 -
18-May-07 - Dividend Received - DIV 300 Dividend @ 0.15 -
27-Aug-07 - Dividend Received - DIV 300 Dividend @ 0.15 -
16-Nov-07 - Dividend Received - DIV 300 Dividend @ 0.15 -
24-Jan-08 - Interim Trade - STO 3 Feb08 15.00 Call @ 0.69 - Expired
21-Feb-08 - Interim Trade - STO 3 Mar08 17.50 Call @ 0.39 -

AXP - Adjustment

The following adjustment was made today on AXP:

21-Feb-08 - Interim Trade - STO 1 Apr08 50.00 Call @ 0.89 -

Current Position Summary:

Stock Investment: $5,674.00
Income Generated: $497.00
Percent Income Generated: 8.76%
Annualized Income Generated: 22.51%
Net Profit If Called: -$177.00
Percent Return If Called: -3.12%
Annualized Return If Called: -8.02%
Days Held to Expiration: 142 days

Trade History:

28-Nov-07 - Initial Stock Position - BTO 100 AXP @ 56.74 -
28-Nov-07 - Initial Call Option - STO 1 Dec07 55.00 Call @ 3.21 - Expired
07-Jan-08 - Continued Trade - STO 1 Feb08 55.00 Call @ 0.69 - Expired
08-Feb-08 - Dividend Received - DIV 100 Dividend @ 0.18 -
21-Feb-08 - Interim Trade - STO 1 Apr08 50.00 Call @ 0.89 -

Monday, February 18, 2008

KCI - Closed

The KCI Feb08 50.00 Call was exercised on Fri and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $10,970.00
Income Generated: $1,535.70
Net Profit: $565.70
Percent Return: 5.16%
Annualized Return: 2.03%
Duration of Trade: 928 days

Buy & Hold Comparison

Opening Price: $59.83
Closing Price: $51.37
P/L per Share: -$8.46
Shares: 200
Dividends: $0.00
Net Profit: -$1,692.00
Percent Return: -14.14%
Annualized Return: -5.56%
Duration of Trade: 928 days

Trade History:

01-Aug-05 - Initial Stock Position - BTO 100 KCI @ 59.83 -
01-Aug-05 - Initial Call Option - STO 1 Aug05 60.00 Call @ 1.69 - Expired
22-Aug-05 - Continued Trade - STO 1 Sep05 60.00 Call @ 1.29 - Expired
19-Sep-05 - Continued Trade - STO 1 Oct05 60.00 Call @ 0.54 - Closed
06-Oct-05 - Buy Back & Roll Out - BTC 1 Oct05 60.00 Call @ -0.11 -
25-Oct-05 - Continued Trade - STO 1 Nov05 60.00 Call @ 0.44 - Closed
28-Oct-05 - Buy Back & Roll Down - BTC 1 Nov05 60.00 Call @ -0.11 -
28-Oct-05 - Interim Trade - STO 1 Nov05 35.00 Call @ 2.04 - Closed
14-Nov-05 - Buy Back & Roll Out/Up - BTC 1 Nov05 35.00 Call @ -4.11 -
23-Nov-05 - Interim Trade - STO 1 Jan06 45.00 Call @ 0.69 - Expired
23-Jan-06 - Interim Trade - STO 1 Feb06 45.00 Call @ 0.39 - Expired
21-Feb-06 - Interim Trade - STO 1 Mar06 45.00 Call @ 0.09 - Expired
20-Mar-06 - Interim Trade - STO 1 Sep06 45.00 Call @ 4.59 - Expired
18-Sep-06 - Interim Trade - STO 1 Dec06 35.00 Call @ 0.94 - Closed
05-Dec-06 - Buy Back & Roll Out/Up - BTC 1 Dec06 35.00 Call @ -3.69 -
05-Dec-06 - Interim Trade - STO 1 Jun07 40.00 Call @ 4.00 - Closed
23-May-07 - Buy Back & Roll Out/Up - BTC 1 Jun07 40.00 Call @ -10.21 -
23-May-07 - Dollar Cost Averaging - BTO 100 KCI @ 49.87 -
23-May-07 - Combined Cost Basis - $10,970.00 200 @ 54.85 -
23-May-07 - Interim Trade - STO 2 Jan08 50.00 Call @ 6.20 - Closed
18-Jan-08 - Buy Back & Roll Out - BTC 2 Jan08 50.00 Call @ -0.16 -
18-Jan-08 - Continued Trade - STO 2 Feb08 50.00 Call @ 2.39 - Exercised
15-Feb-08 - Option Exercised - EX 2 Feb08 50.00 Call @ 50.00 -

I decided to allow KCI to be called away in order to free up the cash for investment in dividend paying stocks. KCI is currently above Morningstar's fair value estimate and it doesn't pay dividends. This was one of my oldest positions, before I switched to a value investing approach. It was a rocky ride and the stock never recovered back to the original purchase price. However, by selling call options I was able preserve my original capital and exit at a small profit, whereas a buy and hold strategy would have resulte in a loss. This is where covered calls usually outperform buy and hold (i.e. on declining stocks).

BBT - Closed

The BBT Feb08 27.50 Call was exercised on Fri and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $2,803.00
Income Generated: $209.00
Net Profit: $156.00
Percent Return: 5.57%
Annualized Return: 52.09%
Duration of Trade: 39 days

Buy & Hold Comparison

Opening Price: $28.03
Closing Price: $33.24
P/L per Share: $5.21
Shares: 100
Dividends: $.46
Net Profit: $567.00
Percent Return: 20.23%
Annualized Return: 189.32%
Duration of Trade: 39 days

Trade History:

07-Jan-08 - Initial Stock Position - BTO 100 BBT @ 28.03 -
07-Jan-08 - Initial Call Option - STO 1 Feb08 27.50 Call @ 1.63 - Exercised
01-Feb-08 - Dividend Received - DIV 100 Dividend @ 0.46 -
15-Feb-08 - Option Exercised - EX 1 Feb08 27.50 Call @ 27.50 -

This was my first dividend play, and while it worked out as expected, the stock took off after I purchased it. I would have been better off using a buy and hold strategy. This is where covered calls underperform buy and hold.