Monday, August 10, 2015

Rollover IRA Purchase: 500 ED @ $64.25

This morning I opened the first of my Rollover IRA positions with a Buy/Write of Consolidated Edison (ED) against September 18 $65 Calls (ED 09/18/2015 65.00 C). This results in a conservative entry price of $64.25 ahead of the September 16-17 FOMC meeting. Nearly everyone expects that meeting to be the first interest rate increase in years, likely 0.25%. Although the talking heads seem to believe that this rate increase is "baked in" I believe that rate sensitive stocks (like ED) are likely to take a small hit. As a result I'm hopeful I won't need to roll out on the 18th.

So what's my potential in this position?

Commissions $12.70 each way, dividend payable 9/15
That's if the position is assigned at expiration (i.e. ED is above $65.00 at the close on 9/18).

Now, the September dividend's ex date is Monday 8/17. Ex dates are 2 days before the record date, so there's a possibility I'll get hit with an early exercise on Friday 8/14. If that happens, I'll take the 1.16% profit in 4 days and open another position. It'll be a bummer to miss the dividend, but that's just one of the factors you need to be aware of when writing covered calls.

ED is intended to be a permanent member of my IRA portfolio. The equity leg of the trade is set to reinvest dividends and will remain so until I need the dividends for income.

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