This is one to be happy about. In my wife’s IRA I bought 200 DSX at 31.15 on May 2nd ($6,239.99 cost) and 45 minutes later sold in the money June 30 covered calls (DSXFF) and received $528.50 after commissions. This morning I received an email that the calls were exercised and I was forced to sell my shares. I received $5979.97 after commissions for the 200 shares. That gave me a $268.48 profit in just three weeks. That was my profit planned for June 20th, four weeks away. Now I get to use my freed-up cash to write a new position. I’ll probably go back in for more DSX shares if it drops a little more and will write the July contracts this time.
To calculate my return on that position I take my profit and divide out my original cost. I come up with a 4.3% gain in three weeks. That’s nearly double what my money market is paying for the full year. Of course there was greater risk with my trade versus a money market, but with that kind of return the risk was worth it and paid off early. If I could work a trade like this every month of the year I’d have a 51% annual return. That gives me room to make a few bad trades along the way and still beat all the major indices. This is the precise reason I sell options.
Date: 05-23-2008
Dear Valued Client,
RE: For account ending in ####
You have recently been assigned the following option position:2 DSXFF
If you don’t have sufficient cash or positions to cover this assignment, please wire the necessary funds or make the necessary trades to close your position.
If you want to trade the position created by this assignment but it hasn’t posted to your account yet, you can place your trade by calling a broker. Please let the broker know the reason the order can’t be completed online in order to receive the Internet commission rate.
If you have questions, please call Client Services. Please enter your account number or UserID when you call to receive the best possible service.
Sincerely,
Bryce Engel
Chief Brokerage Operations Officer
TD AMERITRADE, Inc.
[Edit 2 hrs later – DSX dropped more than $1.50 this morning. While at 32.50 I bought 300 more shares (cost $9,759.99) and sold three covered calls for 4.30 each and I received $1,277.75 after commissions. If these are called away at (or before) expiration I’ll sell my shares for approximately $8,970.00]