Buying Wells Fargo again ($25.5)

I bought 5k shares on 10/17 for $24.66.  Today, I am buying another 5k shares for $25.3

Needless to say, I like the Q3 earning report that I see.  The management is demonstrating great discipline and excellent execution skill.  They handled the Wacovia merger beautifully.  I have to think that it is very challenging to merge those 2 giant operation in the short 3 year term.

I will have some covered call position (AMZN and BRKB) execued this Friday.  So, i will have some free cash that allows me today's action.

I bought 5,000 shares of WFC at $25.3.  Immediately sell Nov $24 covered call.  Premium is $2.05.  And early November, WFC will give out $0.12 dividend.

So, the action looks something like this:

10/19/2011   WFC     25.3    11/19/2011    2.17    45.45   24   50   3.44%    $4,304.55  31 40%  $126,500.00

If by Nov 19, 2011, WFC stock price is above $24/share, then, this position will be called, and I will declare this move a success.  Potential gain is 3.44% in 31 calender days.  Or annuallized 40%

If the price is below $24 a share, i will be happy to hold it a the cost of $25.3 - 2.05-0.12= $23.13. 

I am reserving some cash that in case WFC drop near $23, I will pull the trigger and buy another batch.  The future stock price for WFC will move up and down base on macro environment.  What will stay solid is their increasing customer base.  Their enhanced market share.  Best of all, their strong management team.  Those element will not be changing anytime soon.

I do not care too much if this action success or fail.  I do know current price is a great bargain.


RESULT:  Success

Opportunity showing up, again, WFC 24.66 - Covered call strategy

Wells Fargo is my major long term holding.  I will not touch the current holding.  But I am pulling the trigger for new "trading" position

10/17/11,  I bought 5,000 shares at $24.66/share.  Immediately sold in the money cover call (Nov $23) for $2.3 premium

Translation:

If by 11/19/2011, stock price stay above $23, my 5,000 shares will be called away.  My trade will be consider as success.  Total holding period will be 33 calender days.  Total return excluding dividend will be 2.6% , or 28% annualized.  If include $0.12/share dividend, return will increase to 3.08% or annualized 33%

If by 11/19/2011, stock price stay below $23, i will continue own that 5,000 shares.  My cost for those shares will be $24.66 -2.3 - 0.12 = $22.24.  Base on my research, that is a very safe price level and I am more than happy to hold it a little longer.  It is likely i can sell another round of Jan $23 contract for a good premium.  Will update this post if that ever happen.

Option strategy works great in volatile market.  Pair this strategy with value stock pick, the odd of beating the market is extremely high.  My objective is conservatively grow the portfolio 15% compounded annually.  Do not take unnecessary risk.


The following illustration shows if I can maintain 15% compounded annually return, by the end of year 10, my portfolio portfolio's total return will be over 400%

	15%	20%	25%
Year 1	1.15	1.20	1.25
Year 2	1.32	1.44	1.56
Year 3	1.52	1.73	1.95
Year 4	1.75	2.07	2.44
Year 5	2.01	2.49	3.05
Year 6	2.31	2.99	3.81
Year 7	2.66	3.58	4.77
Year 8	3.06	4.30	5.96
Year 9	3.52	5.16	7.45
Year 10	4.05	6.19	9.31

12/16/2011 END RESULT for that position :  Success~!