Updating my Covered Call Traditional IRA

It has been almost two months since I have provided an update to my Traditional IRA which is used to primarily purchase Covered Calls.   I am not sure if I should be quoting myself but as a brief reminder about the account:

My goal is to find companies with a market cap of at least $200 Million, a positive P/E, a stock price of below $5.00 per share and are traded on the options exchange.  From the remaining companies I will research them one by one to determine whether to move on any of the options available.  The covered calls will be out of the money options that will expire within 0 to 6 months of purchase.  The strike price will be an amount that I am very okay profit-wise.

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In a covered call I own (at least) 100 shares of a company I then sell a contract (1 contract = 100 shares) that says if the company reaches $X price (the strike price) by a certain time the purchaser gets the option to purchase the shares at that price.  When they are buying the contract they believe that the share is going to be worth more than that amount.  For creating/selling this contract I get a sales price.

My Covered Call Moves

Two of the Symbols that are still open (S and EXM) were done before I nailed down my positive P/E requirement as such they don’t exactly fit the model but they are there and thus should be shared.

For organizational purposes I will provide the update in regards to the symbol.  I think this will provide an easier understanding as to what I have done and the money I have made or lost going forward in the years to come.

S – Sprint

  • Bought 575 Shares of Sprint at $2.25 on 2/22/2012 (I had a a few in the account to round me up already)
  • Sold 6 Sprint Covered Call Option Contracts on 2/27/2012 for a Strike Price of $3.00 in August

Sprint - Fidelity Purchase

Since buying the stock in the $2.30s the stock shot up and dropped back down, but since I am locked up till August it doesn’t really matter.  As I explained in the first post in the series even if it closes me out at $3 I will have made a very health gain.  If not I will just sell more covered calls.

RDN – Radian

I purchased three lots of RDN:

RDN Purchases

With those lots I have sold 4 Covered Calls:

RDN Options

  • So I have purchased $2,432.49 worth of RDN Stock.
  • I have collected (and kept) $111.97 on an expired Contract
  • I still have outstanding Covered Calls that have brought in $228.89
  • I have taken 10% off the table on my risk between the covered calls and if any of the contracts are called I will have collected a very healthy return.
  • Currently, the investment is underwater as I bought 500 of the 800 shares at a price higher then we are at currently.

EXM – Excel Maritime

I purchased one lot of EXM:

EXM Purchase

I sold one contract on it which expired already:

First Round of EXM Contracts

I then sold another contract:

Second EXM Contract

  • So I paid $1,877 for EXM
  • Sold a Covered Call with a net of $189.74 – it expired
  • Then brought in another $187.74 – Still open
  • I took $375 off the table in risk which I am happy about – almost exactly 20% of this trade is on the houses money.
  • This stock is embarrassingly low right now ($1.06 as I write this Post) but it doesn’t matter since I am not looking to sell until the contract expires.

State of the Covered-Call Traditional IRA

While I am not particularly happy that two of the three holdings are underwater, I don’t see it as the biggest of deals as the shares of those companies are pretty locked up until August which is when most of my contracts expire.  At that time I will revisit the account to determine the future of this experiment.

5 Responses to Updating my Covered Call Traditional IRA

  1. Lately, I’ve been doing the same thing with VXX except I’ve been selling contracts on the weeklies. I finally got called last week on the 3rd set of calls I sold plus I made a few hundred in the trade. VXX is fun. Just waiting for it to drop back. Maybe I’ll sell a few puts to get back into it :-)

    • I have never looked into VXX. I have a close buddy who recently got killed messing around with TVIX.

      Do you have a post highlighting what you have done with VXX? I’d love to read and get some more details

    • I don’t know much about options…just the real basic stuff. I want to learn more – maybe we can push each other.

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