Both of these trades would’ve been better a few days ago when I first started planning them, but hopefully it’s better late than never. I started with CSX this morning. I have 100 shares long and one covered call expiring on Friday at the $22.50 strike which I didn’t bother buying back because I don’t think it has more than a 1% chance of coming back into play. While CSX was trading at $20.87 I sold one CSX January $20.83 covered call for $$0.93 and received $92.66 after commissions. I stand to make a 4.23% gain if assigned, even after selling in the money. That’s 38.58% annualized, but would still be a loss on the series of trades that I started with a naked put option assignment at $25.00.
I’ll be happy enough to dump my CSX shares if it rallies since I don’t have high hopes for it in the near term and the next ex-dividend is two and a half months away. However, I couldn’t resist one more covered call run with it. The downside is somewhat limited and I might even consider selling another naked put at the $20 strike when it gets closer to being at the money. The $19 area looks like it could act as support, so I’d like to get a minimum $1.00 premium if I end up selling a $20 strike. I’m not going with it yet, but I put it on my radar. With only 100 shares in my account now it’s not a big deal to me overall, even if I add another naked put. See, I’m already talking myself into it. If nothing else, buying another 100 – 200 shares at $20.00 would bring down my cost per share substantially. One of the reasons I’m hesitating, aside from thinking it’s going to drop more from here, is that I’m still trying to move away from individual stocks and focus more on timing the markets with ETFs. The draw of good premiums keeps pulling me back though.
With that focus shifting towards ETFs and away from individual stocks I thought I should add new JPM covered calls in the hopes of my shares getting called away at a higher price than today. I’ve talked about doing this a few times and finally pulled the trigger. I was planning on selling an extra set of December covered calls since my current ones at the $38 strike are so far out of the money, but I waited too long and JPM dropped too quickly. That left me with today’s trade. While JPM was trading at $31.94 I sold two JPM January $33 covered calls for $1.28 and received $254.55 after commissions.
JPM hit resistance just above $34 recently and that was lower than its previous high. I think this new trend line of lower highs could keep the next random high at a lower resistance. That’s why I went with the lower strike – that and the better premium. If it works out, I could make a 7.13% return if assigned based on today’s price or a 4.04% return if JPM stays flat (not much of a chance of that). If assigned my annualized return would be 65.05% and if JPM stays flat it would be 36.84%. Either way is fine with me. I’ll be happy to continue selling such rich premiums as long as I can, but if I can gain 7+% from here it’ll be hard to be upset. If assigned I’ll take a loss on the series of trades, but thanks to options not nearly what I would’ve lost if I had just bought and held my shares that I started with at $43.00.