After years of largely ignoring my small traditional IRA I decided in March of this year it was about time to try out a covered call investment strategy I had thought about for a long time.

The plan was to find undervalued equities 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.

As a reminder, according to Investopedia, a covered call is,

An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium.

My last covered call update was in May 2012 and the option contracts purchased in that post just came do so it is time to see how I did.  As always you can check out my running tally which is updated periodically.

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.

My Covered Call Moves

Sprint – The Great

  • Bought 575 Shares of Sprint at $2.25 on 2/22/2012 (I had 125 in the account to round me up to 700 shares)
  • Sold 6 Sprint Covered Call Option Contracts on 2/27/2012 for a Strike Price of $3.00 in August

Sprint - Fidelity Purchase

WOW IS ALL I CAN SAY ABOUT THIS STOCK. Sprint closed on Friday August 17th at $5.19/share.

First, the good news. I made money!

Sprint Sale

  • So I bought 575 Shares for $1,306.42 plus the other 25 shares came from a different purchase for around the same price so call it a total of $1,362.67
  • I received proceeds of $1,792 on the Sale
  • I received $111.89 on the option contract
  • Total income of $1,903.89 Minus purchase price (and fees) of $1,362.67 = Total Gain $541.22 inside 6 months. A GAIN of 39.71% in 6 months.  

If I could do this steadily I would be in a very different position but worry not I have absolutely no delusions.  This type of return is CAN’T be the normal.  The bad news should be pretty evident.  I didn’t capture a bit over $2/share gain since the call was lower.  I knew this was a “risk” but hey what is the saying,

Bears and Bulls make money and pigs get slaughtered.

I still have one outstanding January option contract at a call price of $3.5 once that happens I will be totally divested of Sprint.

Radian Group – The Good

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
  • The other Covered Call contracts brought in $228.89

On August 18th RDN closed at $3.34 a bit above some of my strike prices

RDN Results

I know this has a lot of moving parts but the awesome thing about this blog is it keeps me accountable and forces me to break everything down.

  • RDN Purchased for $2,432.49
  • I already collected $111.97 on expired contracts and $228.89 for the August Contracts
  • Received $2 in dividend income
  • I will now be receiving $1,492.01 for the $3.0 contract which was fulfilled
  • So far I have received $1,834.87 of my original purchase.

This is not a loss.  I still own 300 shares of RDN (current Value about $1000).  If I sold today I would stand to gain about 15%.  While it is a very great return I am thinking of letting it play for a bit longer and selling more contracts.  What does everyone think? 

EXM – Excel Maritime – The Bad

I purchased one lot of EXM:

EXM Purchase

I sold one contract on it which expired:

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 – it expires in September
  • The stock closed on Friday August 18th for $.50

I am obviously way under water on this stock.  I don’t/can’t do anything on it for another month, so I can’t calculate gain/loss but this one is not looking good right now.

My next move is to start researching various equities based on the criteria above.