Monday, January 13, 2014

Deja Vu - Rolled C Covered Call Up and Out

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 after rolling the C covered call last week, financial stocks (Both XLF and C) fell.  As discussed in the last post, CCI had aggressively rolled the covered call in C "hoping for" a short term reversal to the mean.  That essentially happened just a few days later.  Better lucky than good!  So it was time to recapture some option premium lost in the last roll and re-establish a somewhat less aggressive position as described below:

  • bought back the Jan 24 $54 call in C at $0.97 (sold at $1.63 last week)
  • sold the Feb 22, $55 call in  C at $1.08 (for an $.11 credit)
C still reports earnings this week, so this option position will still require monitoring and perhaps some adjustment.  However, baring an earnings blow out, this option position it is now at a place where there is a reasonable  probability of getting all the way back to a conservative covered call position.

 This position was initiated on  Jan 8, 2013, almost exactly a year ago. The performance of various potential holdings as of the time of this trade are shown below:

  • The XLF etf has been up with the rest of the market. Just buying and holding the XLF over this period would have returned a very nice 29.1 %.  That is comprised of 27.2% unrealized  cap gain, and 1.9% in dividends. This is down 1.3% since the last post.
  • The leverage obtained by instead simply holding the Jan 15 $10 call would have generated an eye popping unrealized, leveraged, capital gain of 67.2%.  This is down 2.8% since the last post
  • The leveraged, long/short strategy defined in this thread is up 56.3%.  An outstanding gain with somewhat less risk/leverage than holding a naked  LEAP. Only down .5% since the last post

No comments:

Post a Comment