A Lesson In The Value of Covered Call Options Final

READ PART ONE
READ PART TWO


One thing about the stock market is that it's okay to change your mind. And that's what I decided to do with Cypress Semiconductor in this month's options play.

Yesterday I sold 13 covered call options contracts with a March 20th expiration and a strike price of $15. The deal for me was a couple-fold. One, on Monday the premium for this call was 50 cents at the start of the trading day, or $50 per contract. As the stock pulled back yesterday that premium gave up 10 cents, or $10 per contract.

I got a little twitchy.

The $16 call for March 20th, the one I would have preferred to have sold, was only about 15 cents or $15 per contract.

Boring.

In January I collected $143 in dividends, and when I sold the first set of contracts on January 21st I collected a premium of $564 after expenses. The March 20th calls gave me a premium of $499 after expenses. Total collected is $1,206.

Based on my cost basis of $12.83 per share, with premiums and dividends collected this puts my total profit at $4,027 if the stock reaches $15 or better by March 20th and I am forced to sell my shares. I am still selling my shares at roughly a 24% gain and I am quite happy with that. I'd be happy to keep my shares as well, of course, and get to play it again in April, but I am inclined to believe that I will be forced to sell.

...and there happen to be a couple other companies on my radar I'd like to put the money from Cypress into.

I still believe that Cypress Semiconductor is a $17 stock, however. And I still like the company. Therefore, if my calls are called and I am forced to sell, I can then start to take a look at selling cash-secured put contracts to either simply collect premiums with no intent to buy shares, or to buy shares at a discount to what I think the future value is.

There is still money in Cypress Semiconductor no matter what happens is the point, and from a technical standpoint whether or not I own the shares,  I can still make money on it. So really, it's win win.

And of course the intention is to make money on wherever my proceeds from the sale of Cypress go.

So there you have it. A lesson in the value of selling covered calls on underlying shares you own to boost your overall profits from a stock. The dividends and options in the event that I'd be forced to sell, put my total per share amount collected to $15.92. So even if it only reaches say, $15.75 and I am forced to sell at $15, I am still getting 17 cents more per share than the market price at the time of the sale.

Watching Cypress Semiconductor (CY)

Back on the 21st I wrote that sometimes you simply root for sideways stock movement, and what I was referring to were stock options, and in this case Cypress Semiconductor (CY) in which I sold some covered call options for with a February 20th expiration date and a strike price of $15.

What was the plan?

Sell the calls and hope for the stock to stay below $15. Then there is always the problem with Murphy's Law, in which, if it happens to be of any interest whatsoever to you, I happen to have a very intimate relationship with.

If I short a stock it goes up. If I go long a stock it goes down. And when I sell a covered call on a stock that has been in a trading range and sell the call above the trading range that I do not wish to sell, but simply wish to generate cash on, it breaks through resistance and goes higher than the strike price.

Ugh!

Not that it bothers me ultimately. I still make money on the calls I sold and I still was already in the money on the underlying stock. Still, once a stock does go in the money I like to try and generate that cash monthly.

At least for a little while anyway.

So I am watching Cypress Semiconductor and keeping my fingers crossed that a) it will drop below the $15 strike, but not go too far below the strike, and b) that in the meantime the buyer of my calls does not decide to exercise his options forcing me to sell my stock.

It is trading today so far at $15.37, which also by the way happens to be a new 52-week high.




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Sometimes You Simply Root For Sideways Stock Movement

Options in the stock market are something I enjoy using from time to time simply to generate cash. I actually really like them. Especially when a stock is trading in a range that already has you showing a profit on paper, you can generate wads of cash doing it this way.

I always sell options contracts. I never buy them. Or at least I rarely do.

Cypress Semiconductor is one such stock that has been trading rather nicely in the past month or so, and so I decided it was time to generate some additional cash and sell some contracts on the underlying stock.

I made a pretty little penny, and I want to do it again next month as well on this one. I sold covered calls with a $15 strike price for February. It is trading today at around $14.15 and the expiration is of course about 30 days away.

So I am keeping my fingers crossed that the stock continues to rise a little bit of course, but also trades a bit sideways until the calls expire. The beauty of these things is that even if the stock is at $14.99 on the day of expiration, it is unlikely I will be called. I get to keep my shares, continue to earn dividends on them, and when I go to sell March contracts hopefully I'll be close enough to the mark to sell them at a $16 strike price.

Best of all worlds.

The key for me is simply to get as much out of any stock I own as I possibly can. That's the plan for Cypress Semiconductor. There's another currently on my radar, but I don't like the market price right now for it's calls.

In due time. I am patient, and the contracts I sold for Cypress should more than allow me some time to wait to pull the trigger on the other candidate.

Photo credit: Image is from Springboard Images.