As mentioned last week, the MRK 58.50 calls expired worthless so I had an open position Monday morning. Watching the open I saw that MRK was rising a bit in an overall market drop. Looking at option possibilities I settled on the September 25 53.50 contract and placed a limit order at $0.40. The order was filled almost immediately at $0.42 for net income of $238.40 after commissions and fees. Normally you want to see about 1% to 1.5% in monthly premium; this 2 week position represents about 0.7% so it's at the higher end of the "good to go" range.
Lesson Learned: Don't get over excited at the open. Give things an hour or so to settle down. The call sold for $0.53 a little later in the morning which would have gotten me another $66.00 in premium. Why does 66 bucks matter? That's $132 in a month. In the 10 position structure I have in mind, we're looking at $1320.00 a month! Almost $16000.00 a year!!
I don't want to be assigned (and lose $3.53 a share on the underlying) so I'll have to keep a close eye on this position since it's only about a buck out of the money. Fortunately the week of September 21-25 is"Popestock" here in Philly and I am going to be "working from home" for the week (along with pretty much everyone else able to do so). Unless the FOMC does something crazy like announce no interest rate increase until 2019 I think this position will expire worthless.
Tuesday, September 15
Today ED delivered $325.00 in dividend income to our account which was automatically re-invested in 5.1465 ED shares. All of our positions are set to re-invest dividends and will remain that way unless we need the income for some reason. When my 401(k) has been completely rolled over that should be about $1200.00 a month all told.
I expected the markets to basically trade sideways going into the FOMC meeting this week, but Tuesday closed up almost 1.5%.
Wednesday, September 16
The FOMC meeting began and the market rally continued with a nearly 1% gain on light volume. The talking heads think this run is mostly short covering with the chance of an interest rate increase now at about 20%.
My F position is now deep in the money and I intend to let it be assigned and redeploy the funds, probably into HCP. That will lower my cost basis a bit and add another $226.00 per year to my dividend income. My 2 week MRK calls are also in the money but only by a few cents.
Thursday, September 17
Initial unemployment claims fell to an 8 week low for the week ending September 12. The markets opened slightly negative and gradually rose into the FOMC's 2:00 announcement, turned negative at the "no change" news, popped green almost immediately and then drifted to a negative close.
Friday, September 18
The S&P dropped about 1.62%. Not surprisingly ED and HCP both rose slightly.
As planned I let my F position be exercised. Monday I'll probably use those funds for some more HCP. That will slightly lower my cost basis and add another $226.00 to my dividend income.
ED actually popped into the money. That position has another 2 months to go but the next ex-dividend date will be at the beginning of November so if it's still in the money I'll be looking to roll out again.
MRK remains depressed. Eventually the pharmaceuticals will rotate back into favor; meanwhile I'll continue to collect dividends (October 7) and write calls.