Sold DIS Covered Call for February

Disney ($DIS) is the only stock I have in my account right now and have been trying to decide if I should exit with a loss or hold on for a gain. I chose the latter and plan to make this work through a covered call. While DIS was trading at $109.30, I sold one February $110 covered call for $2.45 and received $244.32 after paying $0.68 in commission.

My cost per share is $112.01 after deducting the $2.99 premium I received from my original short put that was assigned. If this February covered call is assigned, I’ll have a gain of $43.00. It’s not much, but it’s a gain. This total doesn’t include the $149 in dividends I received since being assigned the shares. At this point, I just wanted to get out close to breakeven for tax purposes before I start over.

Looking back on what I gained or lost on a trade is good for learning from mistakes and successes, but it’s not what should usually drive a trade decision, outside of a tax implication if I’m are close to a gain becoming classified as long-term. The more important deciding factor is how much can you gain with acceptable risk when making a trade. For this DIS covered call, I will make 2.88% if it is assigned, which translates to 15.57% based on the 9.6 weeks to go before expiration. If it isn’t assigned and miraculously stays flat, I will make 2.23% (12.1% annualized) on the premium alone. That 2.23% potential gain on the premium is also the cushion I now have from a further loss if DIS drops again.

While I still like DIS, I need to clear it out of this account that I share with my wife. We’re moving slowly to get our new accounts open, but hope to be up and running before this February option expires so I can sweep this cash into one of our new accounts. A nice benefit to being in cash right now with 95% of my taxable funds is that I’m not too bullish in the near-term. If I had cash to invest, I’d only be looking at farther out of the money naked puts with low potential returns.

« « Dow Jones Chart – January 6, 2017 - | - Options Expiration – January 2017 » »

* If you like this post, then consider subscribing to the Full RSS feed or email updates.

DISCLAIMER: While I am a Registered Investment Advisor Representative, the information contained within this site does not constitue personalized investment advice. This material is meant as entertainment and is only a view into how I invest my own account, but not necessarily how you should invest your own funds. Trade using your own research at your own risk. This is impersonal investment advice which means the material written here, in email exchanges, on Twitter and/or other social networking sites do not purport to meet the objectives or needs of specific individuals or accounts.

Other Popular Articles:

- How to Read an Options Table

- Determining an Exit Price for a Stock

- Understanding Downside Risks in Investing

- How Naked Put Selling Works

- 10 Tips for Keeping Emotions out of Investing

No Comments

No comments yet.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.