In the final 30 minutes of trading today, as the monthly option cycle was coming to its end, I made one last trade for the day.
I had already surprised myself by not paying attention to the strategy I was planning to execute this morning with Marathon Oil.
I further complicated matters by actually opening 2 new positions today, something I don’t do very often to end the week, unless one of those shares is going ex-dividend to start the coming week.
I also ate into my cash reserves.
Add to that the final trade.
That trade was to rollover the deep in the money shares of Best Buy that I purchased on Wednesday.
Ordinarily, I probably should have been content to settle for the 3 day ROI of 1.1% and let it go.
In the case of Best Buy, my expectation was that since it was, in fact, ex-dividend on Monday, and closed the week at $45.71, a full $2.21 above the March 24, 2017 strike that I had sold, that it would get called away from me prematurely.
I would have been fine with that, as the bottom line would still be the same.
A 1.1% ROI for 3 days is pretty good, especially when shares were purchased with an almost 1% cushion, having sold the in the money call.
With a $0.34 dividend, or a 3% yield, the likelihood was very high that the March 24, 2017 $43.50 calls would get exercised tonight.
But I broke another rule today, in addition to the ones mentioned earlier and in today’s previous posts.
I got greedy.
I want that dividend or at lest I want a substitute for it.
What I am now hoping is that by rolling it over to the April 21, 2017 expiration, even though only for a paltry $0.08 premium, there will still be a good chance that the new $44 calls will still be assigned early.
I’m not convinced that will be the case, even as shares closed $1.71 over the new strike, well above the $0.34 price drop ahead as shares go ex-dividend on Monday.
The upside is obvious if someone does take the bait.
Although I wouldn’t get the $0.34 dividend, I would get the extra $0.50 from the new strike and I would still keep that paltry $0.08.
Even after expenses, I would rather have $0.58 than $0.34, especially if I didn’t also have to wait until March 24, 2017 to have a chance of cashing out shares.
If, however, shares aren’t assigned early, that additional $0.50 in strike price and $0.08 premium, get supplemented by the $0.34 dividend.
In other words, if having to hold onto shares until April 21, 2017, there’s an additional $0.92 involved, which is a bit more than 2%
That’s not a lot for a 5 week month, but in these days of low volatility, it’s pretty good, especially since there’s also a nearly 4% downside cushion.
A month from now, I will either feel like a genius or an idiot or maybe just pleased if the trade is still alive and capable of generating some more income.
Two of those three aren’t such bad outcomes.Click here for reuse options!
Copyright 2017 TheAcsMan