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.



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