Covered Calls on Dreamworks (DWA)

Earlier today I mentioned I was leaving a limit order to sell covered calls on my 300 DWA shares.  While DWA was trading at $22.79, my limit order hit and I sold three March 25 DWA covered calls (DWACE) and received $257.75 after commissions. 

I screwed up on DWA a while ago and let emotions get the better of me.  One of the reasons I did so well in 2007 was that I stayed fairly strict about accepting losses without emotion and moving on to better stocks when one of my picks went south.  I didn’t follow that rule with DWA and maybe I’m still not.

I started with DWA two months ago and received $262.75 in premiums from my December 30 naked puts.  Then DWA took a short ride up and finally started to collapse by early December.  I sold double the calls for what I was about to be assigned, but did so at market prices and got burned.  I bought those calls back for a $60 profit when I thought DWA would have a return to glory, but instead I wasted my money as DWA fell deeper than before.

If DWA can make it back up to 25 by March, I’ll take my loss and move on.  I’ll lose ~$1540 on the stocks with commissions added in and will have cut those losses by $580.50 from selling options.  That’s still a loss of about $960 that I’m hoping for as DWA is only trading at $23.02 right now.  Actually, if I’m hoping I might as well hope that DWA closes at expiry at $24.99 and I get to re-write covered calls at a higher premium. 

In the second paragraph I mentioned that I my still be playing this one as a wishful one and not following my own rule.  The more basic move I could have made would have been to sell March 22.50 calls instead to give me a higher premium. Now that I’ve traded the March 25, I’m letting it ride.  $0.90 premium on a $22.79 stock is pretty good, so I can be happy in continuing to take the premiums and not sell the stock if it doesn’t rise within the next nine weeks.