Friday, May 4, 2012

Harvesting Cisco Option Premium....Again

Frequent readers will recall CCI has a small, one-lot position in Cisco (CSCO)  via the Jan 13 $10 Calls (LEAPS).   The intent is to try to generate income against this leveraged position via selling calls against it. This position was described in more detail at a post done on Feb 9 that can be found here.

Earlier this year, one cycle of covered calls successfully yielded a modest $.21/contract gain as described here in March

With today's market pull back, CCI covered the second cycle of covered calls for a cost of $.13 after commissions.  This cycle of covered calls generated $.35 / contract gain.

In total that is a $.56/contract gain.  With the leverage provided by the LEAPS being bought at $8.37, that is a realized gain 6.7%. over two option cycles this year.

The $10 Jan Leap has an unrealized gain of 8.6% at this time.  Cisco reports earnings on Wednesday so this position will likely fluctuate next week, but CCI plans to hold this for awhile longer.

If Cisco's price or option volatility were to spike early next week going into earnings, we might sell the July $21 calls again this position again.  However, more likely we will wait to see the status or earnings before determining next steps for this position.     

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