Friday, September 14, 2012

Rolled Cisco LEAPS

Frequent readers of CCI will recall that the portfolio has owned LEAPS in Cisco (CSCO) for a long time.
The primary logic for holding this position has been a belief that Cisco's solid balance sheet should provide a floor on the stock, but their competitive market space will make it hard for the stock to soar. Meanwhile, market noise around this former tech. darling creates a reasonable high volatility environment which creates rich option premiums to harvest.  Hence CCI has been selling shorter dated, OTM covered calls against these long dated calls to harvest this premium if CSCO goes sideways.

In August, when Cisco was trading back down  near the $17 level where this position was initially entered, CCI rolled the Jan 13 $10 call out to the Jan 14 $10 call.  Those calls were trading under 7.00 and  this roll was done for nearly no additional capital (about $.05/contract).    This provides another potential year of duration to continue to execute this strategy.
Since August, Cisco has had a nice move back up over $19.  With that move, CCI sold Oct $20 calls against this position for $.41.   If Cisco stalls or pull back we will harvest this premium of about 6 % (.41/7).  If Cisco continues to rise over $20 we may consider exiting the position and taking profits.

No comments:

Post a Comment