Monday, November 14, 2011

MMM - Rolled Covered Calls

I was right before I was wrong.
No that is not the latest words from a politician, but rather this describes CCI's trading position on MMM

Readers will recall CCI was corrected in anticipating that MMM would manage down expectations during the last earnings cycle and correctly used covered calls to make a modest profit from this event.  However, CCI's confidence was shaken when MMM also missed q3 earnings, causing CCI to too act a little too hastily in re-establishing a covered call position all the way back down at $75.  A little more patience a belief in the original thesis would have allowed the covered calls to re-established at a higher price and substantially better return. 

But that is yesterday's lesson.  With expiration only 4 days away and MMM trading around $81.70, CCI did what seems like a prudent thing and rolled the Nov $75 covered calls out and up to the Dec $77.5 covered calls.   There are several scenarios in play over the next five weeks, but in the situation where MMM continuesly trades over $80 for the next 5 weeks this lot of stock and related options will have returned a modest 4+% gain. Not fantastic, but not bad for having risk capital tied up in a "relatively safe"  blue chip stock that may haved not moved anywhere during the holding period.

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