Monday, July 1, 2013

Re-established Covered Call in C

As discussed here CCI has a long position in the financial sector etf (xlf) via the Jan 15 $10 Call, that has usually been hedged via a shorter duration short call in Citigroup (C).

Just last week, CCI closed the hedge/covered call in C.  Over the past few days C and the rest of the financial stocks have rebounded nicely. Hence, CCI re-established a hedge against the long calls in the financial ETF XLF held in the portfolio by selling the July 26 $52 call in C for a credit of $.30 after commissions.  

The July 26 strike was selected to potentially provide enough time for any volatility generated from mid July earnings announcements from C (7/15 earnings) and other large banks to play itself out.  The $52 strike was selected because of its relatively large distance out of the money (18 delta), technical chart levels, and providing the potential to roll to many $52.50 strikes further out in the future if the stock moves sharply higher.  

To-date, the combination being leveraged long the financial stocks via XLF hedged by this type of short position has worked well.  Hopefully this strategy will continue to generate increase returns  but it already has generated enough option premium to have provided a good hedge against a downward move in the market.  Most likely this position will be held to/through C's earning announcement on July 15 and then adjustments will likely be required. 

No comments:

Post a Comment