Covered Calls Investing

Closing Transaction (NPIP - 5/4/2011) - First Energy (FE)

2011-05-11T12:09:00.000-07:00

After reviewing the remaining option premium for this naked put which is part of the NPIP, the decision has been made to close the position. Generally, I will close positions in this portfolio when the annualized return has fallen under 2%. The final profit/loss info is below:

2/22/2011 -- Sold To Open 1 FE July 2011 $34 Put @ 0.6424
5/4/2011 -- Bought To Close 1 FE July 2011 $34 Put @ 0.1077

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Cost Basis: N/A

Final Profit: 1.57%

Original Projected Annualized Profit: 4.82%

Final Annualized Profit: 8.08%

New Position (NPIP) (5/4/2011) - Freeport-McMoRan (FCX)

2011-05-11T12:07:00.000-07:00

This is a new position in Freeport-McMoRan (FCX). This position is established in the Naked Put Investing Portfolio (NPIP). The profit/loss info is below:

5/2/2011 -- Sold To Open 1 FCX November $35 Put @ 0.9834

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):

Downside Coverage (from current price of $50.34): 32.4%

Potential Annualized Return At Expiration (11/18/2011): 5.18%

Closing Transaction (NPIP - 5/4/2011) - Abbott Labs (ABT)

2011-05-09T12:43:00.000-07:00

After reviewing the remaining option premium for this naked put which is part of the NPIP, the decision has been made to close the position. Generally, I will close positions in this portfolio when the annualized return has fallen under 2%. The final profit/loss info is below:

12/27/2010 -- Sold To Open 1 ABT August 2011 $42.50 Put @ 1.5231
5/4/2011 -- Bought To Close 1 ABT August 2011 $42.50 Put @ 0.2066

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Cost Basis: N/A

Final Profit: 3.10%

Original Projected Annualized Profit: 5.54%

Final Annualized Profit: 8.83%

Closing Transaction (NPIP - 5/3/2011) - Intel (INTC)

2011-05-09T12:40:00.000-07:00

After reviewing the remaining option premium for this naked put which is part of the NPIP, the decision has been made to close the position. Generally, I will close positions in this portfolio when the annualized return has fallen under 2%. The final profit/loss info is below:

12/28/2010 -- Sold To Open 1 INTC July 2011 $17.50 Put @ 0.4374
5/3/2011 -- Bought To Close 1 INTC July 2011 $17.50 Put @ 0.0498

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Cost Basis: N/A

Final Profit: 2.28%

Original Projected Annualized Profit: 4.72%

Final Annualized Profit: 6.60%

New Position (NPIP) - Oshkosh (OSK)

2011-05-04T08:20:00.000-07:00

This is a new position in Oshkosh (OSK). This position is established in the Naked Put Investing Portfolio (NPIP), to replace some of the positions exited yesterday morning. The new profit/loss info is below:

5/2/2011 -- Sold To Open 1 OSK October $25 Put @ $0.7922

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):

Downside Coverage (from current price of $30.98): 21.9%

Potential Annualized Return At Expiration (10/21/2011): 6.72%

New Position (NPIP) - General Motors (GM)

2011-05-02T13:19:00.001-07:00

This is a new position in General Motors (GM). General Motors is an US-Based auto manufacturer with global reach. General Motors emerged from bankruptcy after the financial crisis, a much stronger company as it was able to get rid of many of the problems that dragged it down. The company has very good growth prospects in developing countries, as it is one of the major competitors in China, and is reemerging as a leading US provider as well with innovative new products such as the Chevy Volt. Chrysler also recently reported earnings today, and they had a quarterly profit for the first time since their bankruptcy, and considering how dismal of a company that Chrysler is, if they can do that, GM should be doing great. This position is established in the Naked Put Investing Portfolio (NPIP), to replace some of the positions exited this morning. The new profit/loss info is below:

5/2/2011 -- Sold To Open 1 GM July $27 Put @ $0.34

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):

Downside Coverage (from current price of $32.18): 17.2%

Potential Annualized Return At Expiration (7/15/2011): 5.53%

Closing Transaction (NPIP) - L-3 Communications (LLL)

2011-05-02T08:28:00.000-07:00

After reviewing the remaining option premium for this naked put which is part of the NPIP, the decision has been made to close the position. Generally, I will close positions in this portfolio when the annualized return has fallen under 2%. The final profit/loss info is below:

10/22/2010 -- Sold To Open 1 LLL January 2012 $55 Put @ 3.2899
5/2/2011 -- Bought To Close 1 LLL January 2012 $55 Put @ 0.6578

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Cost Basis: N/A

Final Profit: 4.79%

Original Projected Annualized Profit: 4.80%

Final Annualized Profit: 9.10%

Closing Transaction (NPIP) - Intel (INTC)

2011-05-02T08:24:00.000-07:00

After reviewing the remaining option premium for this naked put which is part of the NPIP, the decision has been made to close the position. Generally, I will close positions in this portfolio when the annualized return has fallen under 2%. The final profit/loss info is below:

12/28/2010 -- Sold To Open 1 INTC January 2012 $15 Put @ 0.5874
5/2/2011 -- Bought To Close 1 INTC January 2012 $15 Put @ 0.2223

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Cost Basis: N/A

Final Profit: 2.43%

Original Projected Annualized Profit: 3.68%

Final Annualized Profit: 7.11%

Update To Investing Strategy

2011-04-30T09:11:00.001-07:00

Over the past few months I have been "beta-testing" a new investing strategy which combines the original covered call investing strategy along with a new long-term naked put hedge structure. This strategy combines the conservative nature of covered call investing, with what I would best term as conservative long-term hedging. Below I describe the current strategies for both pieces of the revised portfolio strategy:

CCIP (Covered Call Investing Portfolio):

This portion of the portfolio seeks to utilize a combination of covered calls and cash-secured puts to target an annualized return of approximately 20%
The portfolio is allocated based on a projected annualized return basis along the following guidelines:

- Projected Annualized Returns of 3-10%: 10% of Portfolio
- Projected Annualized Returns of 10-20%: 27.5% of Portfolio
- Projected Annualized Returns of 20-40%: 35% of Portfolio
- Projected Annualized Returns above 40%: 25% of Portfolio
- Cash Allocation of 2.5%

In order to keep to these allocations, the portfolio is rebalanced after options expiration on a monthly basis
If a position is closed between options expiration days, then a new position is established based on the current projected returns of the remaining positions

Naked Put Investing Portfolio (NPIP):

This portion seeks to use naked put options to act as an income generating hedge for the CCIP
Naked puts will be sold with an intended exposure of approximately 150% of the existing CCIP
Target returns for the naked puts will be an average of a 5% annualized return, with downside protection of at least 20%
The options in this portfolio will generally have lifetimes of at least 3 months, and at the most be 1 year in length

Thus far, the combined portfolio CCIP/NNIP has produced results that have reduced overall volatility, and performed better than the market during downturns. The intent of this portfolio is not and has never been to consistently "beat the market." It is instead intended to provide consistent positive returns on an annual basis. It is this investor's opinion that most investors tend to get hung up in targeting extremely high returns in short period of times, and lose focus of long-term compounding growth.

As usual, I will be interested in hearing others opinions of this strategy. I will now be posting the current NNIP portfolio as well as notating in each post whether a new position is for the CCIP or the NNIP.

Updated Current Positions

2011-04-25T09:54:00.001-07:00

I've updated the current holdings in the CCIP as of 4/25/2011.

Frontline (FRO)

2011-01-05T10:58:00.001-08:00

This position is in Frontline (FRO), a company which owns and operates large oil tankers. This company is attractive as it pays a hefty 3.9% dividend at the current dividend, which could increase as the economy continues to increase, as it is a variable dividend. The company hit a 52-week high of almost $37 in April, and has been in a steady decline since then, but recently seems to have flattened out around $25. Although it originally was purchased around $29, the stock has been providing good call premium revenue, as well as earning the dividend. The current profit/loss info is below:

Based on the current cost basis, the potential annualized return for this position if called at expiration in January would be 27.03%.

Petrobras (PBR)

2011-01-03T12:22:00.001-08:00

This position is in Petrobras, a Brazilian oil & gas conglomerate. This position was originally opened in October after PBR had reached a new 52-week low. Petrobras is one of the most technologically advanced deepwater oil companies in the world, and as such would be primed to participate in the development of future deepwater projects, which are going to be the majority of new oil developments. Based on the current price, however, it is likely that this position will be exited at expiration in January. The profit/loss info is below:

Based on the current cost basis, the potential annualized return for this position if called at expiration in January would be 23.56%.

Encana Corporation (ECA)

2011-01-03T12:05:00.001-08:00

This position is in Encana Corporation, a Canadian-based natural gas company. Encana is focused on developing unconventional natural gas formations including shale, tight-gas, and coal-bed methane. The company yields almost 3%, and has generated an average operating margin of about 25% over the past 5 years, with a number of years nearing 50%. The company also has a very intriguing chart which in my opinion demonstrates the perfect type of chart for covered calls investing. The stock has remained rangebound between $26 and $35 for the past year. So essentially, while you receive call premium for holding the stock your also being paid a nice dividend. This has resulted in a potential annualized gain of 20% since the stock was originally purchased in August. The profit/loss info is below:

Based on the current cost basis, the potential annualized return for this position if called at expiration in January would be 20.21%.

Abbott Labs (ABT)

2011-01-03T11:38:00.001-08:00

This position is in Abbott Labs, a pharmaceutical company. This position was originally opened in January, as part of the Covered Call Dividend portion of the CCIP. The purpose of this type of position is to utilize ex-dividend dates as potential option call dates in addition to the normal expiration. This idea is based upon the fact that the owner of a call, can purchase the stock at the referenced strike if the stock price is currently above the strike. If the time premium remaining on the option is less than the upcoming dividend, often times the stock will be called away, greatly increasing the annualized return. If it is not called away, then I receive the dividend (which is taxed more favorably) and still keep the stock. The important purchase metrics are below for insight into possible profit and loss (these all include commissions):

Based on the current cost basis, the potential annualized return for this position if called at expiration in February would be 5.43%.

MEMC Electronic Materials (WFR)

2010-12-29T15:27:00.002-08:00

This position is in MEMC Electronics Materials which is a manufacturer of silicon products for use in the solar power market as well as consumer electronics. The position was originally opened in the beginning of this year, and the stock itself has underperformed thus far. However, as a result of selling calls against the position, the cost basis has been reduced to a point where any upward movement in the stock would be profitable from this point. The transaction info, and potential return are below:

Based on the current cost basis, the potential annualized return for this position if called at expiration in January would be 1.1%.

Current Positions

2010-12-29T15:27:00.001-08:00

Posts will resume with current status of each position in the portfolio.

Back up and running....

2010-12-29T15:09:00.000-08:00

After a long hiatus, I will be restarting posts in 2011. First step updating everyone on current holdings and the streamlined investing plan.

Blog posts moving to twitter - follow @cranjangles

2010-08-29T16:42:00.001-07:00

Update Transaction - Multi-Fine Electronix (MFLX)

2010-06-24T10:46:00.000-07:00

This position was rolled forward to August expiration. The new profit/loss info is below:

1/15/2010 -- Sold to Open 1 MFLX February $25 Put @ 1.2324
2/5/2010 -- Bought to Open 1 MFLX February $20 Put @ 0.4101
2/19/2010 -- Stock Bought Due To Option ITM @ $25.10
2/22/2010 -- Sold to Open 1 MFLX April $25 Call @ .2824
4/9/2010 -- Bought to Close 1 MFLX April $25 Call @ .2975
4/9/2010 -- Sold 100 MFLX @ 24.8295
4/9/2010 -- Sold to Open 1 MFLX May $25 Put @ 1.4399
5/7/2010 -- Bought to Close 1 MFLX May $25 Put @ 0.89
5/7/2010 -- Sold to Open 1 MFLX June $25 Put @ 1.37
5/25/2010 -- Bought to Close 1 MFLX June $25 Put @ 2.02
5/25/2010 -- Sold to Open 1 MFLX July $25 Put @ 2.55
6/24/2010 -- Bought to Close 1 MFLX July $25 Put @ 0.72
6/24/2010 -- Sold to Open 1 MFLX August $25 Put @ 1.60

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $23.77
Current Cost Average: $21.13
Commissions (Included In Cost): $39

Potential Annualized Gain If Called At Expiration (8/20/2010): 27.36%

Current Holdings

2010-06-23T10:10:00.001-07:00

The current holdings of the CCIP as of June 23, 2010 are:

MEMC Electronic Materials - 100 Shares ($12 July CC)

Verizon - 100 Shares & 1 CSP ($32 July CSP, 100 Shares Uncovered)

Marathon Oil (MRO) - 1 $32 August CSP

Discover Financial (DFS) - 100 Shares ($15 July CC)

Multi-Fineline Electronics (MFLX) - 1 $25 July CSP

Sociedad Quimica y Minera (SQM) - 1 $35 August CSP

Linear Technology (LLTC) - 100 Shares ($27 July CC)

Neutral Tandem (TNDM) - 100 Shares ($15 Aug CC)

Abbott Labs (ABT) - 1 $52.50 August CSP

Texas Instruments (TXN) - 1 $23 July CSP

Life Partners Holdings (LPHI) - 1 $17.50 Aug CSP

JC Penneys (JCP) - 1 $23 July CSP

Nucor (NUE) - 100 Shares ($40 July CC)

McGraw-Hill (MHP) - 1 $27.50 Aug CSP

Suncor (SU) - 1 $28 July CSP

A123 Systems (AONE) - 100 Shares ($9 July CC)

Posting To Resume

2010-06-23T09:59:00.000-07:00

After an extended hiatus, posts will resume in the month of July. I will begin with a recap of how the portfolio has fared over the last few months.

Update Transaction - J.C. Penney (JCP)

2010-02-10T18:27:00.000-08:00

Position rolled forward to March. The new profit/loss info is below:

1/20/2010 -- Bought 100 JCP @ 25.86
1/20/2010 -- Sold To Open 1 JCP February $26 Call @ 1.04
2/10/2010 -- Bought To Close 1 JCP February $26 Call @ 0.2101
2/10/2010 -- Sold To Open 1 JCP March $26 Call @ 0.6399

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2482.00
Current Cost Average: $24.3902
Commissions (Included In Cost): $4

Potential Annualized Gain If Called At Expiration (3/20/2010): 39.88%

Update Transaction - Texas Instruments (TXN)

2010-02-10T18:24:00.000-08:00

The position in TXN was rolled forward to next month (March). The new profit/loss info is below:

1/20/2010 -- Bought 100 TXN @ 24.36
1/20/2010 -- Sold To Open 1 TXN February $24 Call @ 1.03
1/28/2010 -- Dividend @ 0.12
2/10/2010 -- Bought To Close 1 TXN February $24 Call @ 0.1701
2/10/2010 -- Sold To Open 1 TXN March $24 Call @ 0.5599

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2333.00
Current Cost Average: $22.8202
Commissions (Included In Cost): $4

Potential Annualized Gain If Called At Expiration (3/20/2010): 31.02%

Dividend Payment - Linear Technology Corp. (LLTC)

2010-02-10T10:31:00.000-08:00

This is a dividend update to the position in Linear Technology Corp. Yet again, the stock was not called away previous to the ex-dividend date. The new profit/loss info is below:

2/1/2010 -- Bought 100 LLTC @ 26.88
2/1/2010 -- Sold To Open 1 LLTC February $27 Call @ 0.51
2/10/2010 -- Dividend @ 0.23

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2637.00
Current Cost Average: $26.14
Commissions (Included In Cost): $2

Potential Annualized Gain If Called At Expiration (2/20/2010): 61.92%

Update Transaction - MEMC Electronic Materials (WFR)

2010-02-10T07:08:00.000-08:00

In my continuing effort to slowly move all of my positions to IB, I have performed another complicated switching from a covered call position to a cash-secured put position. I also shifted the expiration forward to March. The new profit/loss info is below:

10/21/2009 -- Bought 100 WFR @ 15.76
10/21/2009 -- Sold To Open 1 WFR November $16 Call @ 0.81
10/23/2009 -- Bought To Close 1 WFR November $16 Call @ 0.25
10/23/2009 -- Sold To Open 1 WFR November $15 Call @ 0.40
10/27/2009 -- Bought To Close 1 WFR November $15 Call @ 0.20
12/2/2009 -- Sold To Open 1 WFR April $16 Call @ 0.55
2/10/2010 -- Bought To Close 1 WFR April $16 Call @ 0.18
2/10/2010 -- Sold 100 WFR @ 11.96
2/10/2010 -- Sold To Open 1 WFR March $15 Put @ 3.0524

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):

Potential Gain If Not Called At Expiration: 2.56%

Potential Annualized Gain If Not Called At Expiration: 6.22%