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~!
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