Wednesday, September 23, 2009
So, yesterday I opened this:
Bought 200 shares of YRCW at 4.1799 plus a commission of 4.95 for a total of 840.93.
Sold to open 2 contracts of YUX JG (Oct 4 Call) at 0.75 minus commissions and fees of 6.26 for a total of 143.74.
BOT 200 YRCW for 840.93
STO 2 YUX JG for 143.74
Total = 697.19
Total cost per share = 3.486
At expiration on October 17, assuming YRCW is still above 4 it will close at 795.02 (calculating in a 4.95 commission and estimating a .03 SEC fee.)
Total Gain: 795.02 - 697.19 = 97.83
Percent Gain: 97.83 / 697.19 = 14.032% in 25 days.
Annualized Gain (assuming that this is really a 1 month trade) 14.032% * 12 = 168.4%
Once again I am giving up potential upside (YRCW is trading at 5.47 as I write this) for a high probability of gain! And if YRCW continues it's upward swing, I could very likely close early for a near max gain like I did with EK.
Thursday, September 3, 2009
Do I hold for my planned gain for another week or two or do I get out now and find a new place for my money?
I decided to close at a near maximum gain.
Here are the numbers:
On 8/13 (Expiration was 8/24)
Sold 400 shares at 4.49. Total value of 1791.00 (4.95 commission and 0.05 SEC fee)
Bought to Close 4 contracts EK HR at 1.52 for a total debit of 615.55 (7.55 commission)
Total at close: 1175.45
You will recall from the earlier post the maximum value at expiration was 1195 (using the SEC fee of 0.05 plus the 4.95 commission.)
So it cost me $20 extra to close 11 days early. Well worth it if I can find another place for the money for those 11 days that will make more that $20. (Where it went will be listed in a new blog post that I should post this weekend.)
I started by investing 1096.51 to open this position on 7/21.
On 8/13 I closed the position for 1175.45.
Total gain was 1175.45 - 1096.51 = 78.94.
Return for the position = 7.199% in 23 days. (78.94/1096.51)
Annualized return = 114.248% ((7.199% / 23 Days) * 365 Days)
Not to shabby!
Wednesday, August 5, 2009
EK (Eastman Kodak)
Entry Date 7/21/2009
400 Shares of EK at $3.09 (Commission $4.95)
4 contracts EK HR (Kodak Aug. 2009 Call $3 strike) at $0.38 (Commission $7.55 +$0.01 SEC Fee)
The totals are therefore:
$1096.51 to open position (or $2.72 per share)
Goal is for EK to close Aug 22nd at or above $3.01 per share.
($3.00 even is an interesting scenario that I will perhaps get into on a later post.)
Assuming that happens (and as I write this EK closed at 3.83) I would sell for:
1195.02 (assuming a $4.95 commission and a $0.03 SEC charge)
For a total gain of $98.51 on $1096.51 invested, or a one month gain of 8.9%
Once again, I am giving up upside potential for a high probability of gain.
Saturday, July 25, 2009
The most common commission structure for options is to charge a base fee, and then add a per contract charge. This is the method my broker TradeKing
uses. The base fee at TradeKing is 4.95 and then there is a per contract charge of 0.65, therefore:
1 contract trade: 5.60 or (4.95 +(0.65*1))
2 contract trade: 6.25 or (4.95 +(0.65*2))
3 contract trade: 6.90 or (4.95 +(0.65*3)) etc.
Stock trades at most brokers is flat rate:
TradeKing charges 4.95.
There are cheaper brokers out there, but I like TradeKing for three reasons:
- Their customer service is second to none. Any issue is dealt with in a timely manner, and you can contact them online via chat or email or on the phone.
- Their research tools are in depth, detailed, helpful and included at no extra charge (except streaming quotes, but a covered call writer has no real use for streaming quotes! The included real time quotes will work just fine, besides if you are only looking at one stock you can go to google finance and get streaming quotes!)
- The community. There is a thriving community at TradeKing with forums, a leader board, user sponsored IRC chat and more!
Commissions are a real cost of doing business to any trader or investor of any kind. I will show my commissions on all trades I discuss and include what the cost of doing business is. You will be able to see the commissions in relation to profit and how much of a drain on profits they can be! However, as I pointed out in #2 above, they are worth it if you get good tools from your broker!
Soon, I will start getting to my current open trades!
Friday, July 24, 2009
- The stock. In any covered call the motto to remember is: "the risk is in the stock." The stock could go to zero causing you to lose all the money invested.
- Loss of upside. This method will rarely produce a gain of more than 10%.
- The stock! This is the #1 risk, that cannot be over emphasized!