CCL - Adjustment

The following adjustment was made today on CCL:

05-Aug-08 - Buy Back and Roll Out/Up - BTC 1 Aug08 35.00 Call @ -5.11 -
05-Aug-08 - Dollar Cost Averaging - BTO 100 CCL @ 39.89 -
05-Aug-08 - Combined Cost Basis - $8,125.00 200 @ 40.63 -
05-Aug-08 - Continued Trade - STO 2 Oct08 40.00 Call @ 3.15 -
12-Sep-08 - Dividend Received - DIV 200 Dividend @ 0.40 -

The Aug08 35.00 call was deep ITM with less than .15 time value so I decided to roll out/up to avoid assignment. This is a case of an interim trade gone bad (i.e where the strike price is below the cost basis of the stock, which would result in a loss if called). The stock price is now two strikes above the 35.00 call. It was originally sold at $0.79 and now had to be bought back at $5.11, for an $4.32 loss on the call option.

However, this is not as bad as it looks. There's a way to recover from this situation and be able to roll out/up for a net credit, by averaging down. I only use this technique on companies I'd be willing to hold for the long term and be willing to add to my position. By averaging down another 100 shares, I not only lowered my original cost basis in the stock but I was able to sell two call options. So, instead of having to find one call option at $5.11 or more to replace the one I bought back, I only needed to find a call option at $2.55 or more, since I was selling two of them. The Oct 40.00, which is ATM, was sold for $3.15, more than enough to net a credit on the roll. Also, CCL ex-dividend date is coming up on 8/20, with a pay date of 9/12, so I'll receive twice the dividend income before Oct expiration.

So, even though the interim trade went bad, I was able to recover from it and will end up with a small profit if I allow CCL to be called in Oct.

Current Position Summary:

Stock Investment: $8,125.00
Income Generated: $456.60
Percent Income Generated: 5.62%
Annualized Income Generated: 12.21%
Net Profit If Called: $331.60
Percent Return If Called: 4.08%
Annualized Return If Called: 8.87%
Days Held to Expiration: 168

Trade History:

02-May-08 - Initial Stock Position - BTO 100 CCL @ 41.36 -
02-May-08 - Initial Call Option - STO 1 Jun08 42.50 Call @ 1.38 - Expired
13-Jun-08 - Dividend Received - DIV 100 Dividend @ 0.40 -
07-Jul-08 - Interim Trade - STO 1 Aug08 35.00 Call @ 0.79 - Closed
05-Aug-08 - Buy Back and Roll Out/Up - BTC 1 Aug08 35.00 Call @ -5.11 -
05-Aug-08 - Dollar Cost Averaging - BTO 100 CCL @ 39.89 -
05-Aug-08 - Combined Cost Basis - $8,125.00 200 @ 40.63 -
05-Aug-08 - Continued Trade - STO 2 Oct08 40.00 Call @ 3.15 -
12-Sep-08 - Dividend Received - DIV 200 Dividend @ 0.40 -