Wednesday, December 18, 2013

Rolled C Covered Call

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).

With only a few days until expiration, CCI rolled the short call in Citigroup as a hedge against the long. leveraged position in XLF held in the portfolio. Specifically,  CCI
  • bought back the Dec  21 $52.50 call at $.08, harvesting $.36 in option premium per contract
  • sold the Jan 10, $53 call at $.44/contract.  
Note: C is scheduled to report earnings on Jan 13.  This strike date was selected to avoid the volatility of that event.  This position will likely be rolled out to a strike well beyond the earnings date (feb?) if an opportunity to harvest option premium presents itself in the next few weeks

Since inception on Jan 8, 2013 the performance of various potential holdings as of the time of this trade are shown below:
  • The XLF etf  has been relatively flat lately but continues to hold onto its excellent performance since January - up 24.7%! That is comprised of 23.4% unrealized  cap gain, and 1.3% in dividends.
  • The leverage obtained by instead simply holding the Jan 15 $10 call has generated and unrealized, leveraged, capital gain of 58.0%.  (leverage is great when it works!!!)
  • The leveraged, long/short strategy defined in this thread is up 53.8%. That is comprised of 39.5% in unrealized leveraged capital gains, 14.3% in realized option premium.  

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