I wanted to provide an update on a few transactions I made earlier this week that fit with my strategy for combining high dividend yielding stocks with covered call options. The transactions were made around my position in HTE (see Combining high dividend yields with covered call options). I currently own 200 shares of HTE which pays a nice monthly dividend. In order to increase my passive income on a monthly basis, I sold 2 May $22.50 Covered Call contracts back in April (2008) and generated $151.99 in additional income during the month. One of the downsides for using this strategy is losing out on the stock if the share price is above the strike price on the 3rd Friday in May. Earlier this week, shares of HTE pushed above the May strike price, so I decided to take action. I wanted to make sure that I could continue to receive the monthly dividend that HTE pays out and not lose out on the stock later in May. As a result, I made the following transactions to my portfolio:
- Bought 2 May $22.50 Call contracts @ $.70 / contract - I purchased back the 2 May $22.50 Covered Call contracts I original sold in April. The total price of the transaction (commission included) was $148.00.
- Sold 2 June $22.50 Call contracts @ $.95 / contract - I turned around and made a second transaction by selling 2 June $22.50 contracts. The total proceeds of the transaction (commission included) was $180.49.
NET RESULT OF TRANSACTIONS: $32.49 in positive cash flow
Final Thoughts
This week’s transactions allowed me to continue to “stay in the game” with a stock that I believe has a lot of upside. By making these moves, I will collect the May and June monthly dividend distributions for my 200 shares. I also increased my monthly cash flow by $32.49. Hopefully the stock will continue to trade in its current range which will allow me to keep making additional trades as the ones I made this week. The one downside is if the stock makes a huge run to the upside, then eventually I will lose out on the stock. If this happens, I will take my proceeds and move on to the next stock.
Sincerely,
passivefamilyincome
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