Today is the September Options expiration day. One of my more successful passive income streams is selling covered call options against stocks that I own in my portfolio. This month, I have five covered call contracts open on shares of Wachovia that I have in my portfolio. I own 500+ shares of WB and have been selling covered call contracts against the stock since April. Below is a breakdown of the income generated from selling these option contracts.
- April Calls – $96.99
- May Calls – $303.25
- June Calls – $253.97
- July Calls – $81.98
- August Calls – $138.98
- September Calls – $88.98
- TOTAL – $964.15
The 500+ shares that I own had been in my portfolio for some time. It wasn’t until April of this past year that I decided to increase my monthly cash flow by selling these contracts to hedge against downward pressure in the financial sector. My strategy has been to stagger the contracts across a few key strike prices each month. In the event, the stock has a significant increase, then more than likely the contract(s) will be called. I am actually looking to unload a good portion of my Wachovia holdings because of uncertainties in the financials and with the long-term health of the company. I am in the process of spreading my holdings across many different high yielding stocks and reducing my stake in this company is part of that plan.
Today, it looks like several of my contracts will be called with the huge run up in prices of the financials in the past two days. Just two days ago, WB looked like it could follow Lehman Brothers or AIG and drop under $5. It is amazing what a few days and some positive news makes. I will provide an update on my status next week once the expiration date passes.
On a side note, for those interested in selling covered call options, check out my article on eHow titled – How to sell covered call options. If you have the stomach to withstand the ups and downs, the financial sector is an interesting place to sell covered call option contracts. The volatility is amazing and has been for several months, which allows for more money to be made by selling these contracts. On the other hand, there is tremendous risk involved by trading in this sector.
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That sounds like a nice income stream you have out there. But at the end of March your position was worth $13,500 and as of yesterday’s close it was worth $8,300. The extra “income” is decreasing your cost but at the end of the day you are selling at a loss since the strike prices it takes to profitable sell calls at are progressively getting lower. Thus even though you generated 964 in income, you actually have set yourself to lose $4,000.
The best covered call strategy is one that would work with naked call selling and you keep your shares while. your options expire worthless.
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Dividend Growth Investor – Excellent points. My strategy was a little different with Wachovia than some of my other covered call contracts that I have sold in the past. I was looking to unload a good portion of my Wachovia position to diversify more and with their cut in the quarterly dividend. At the same time, I didn’t want to sell at a significant loss with my average share price in the mid 20’s. So instead, I sold Covered Calls spread out across different strike prices to earn some income until the stock rebounds.
I also agree with your points on selling naked calls. It just makes me a little nervous is all.
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I realize that you are trying to make more money off your stocks and it’s great that you are doing covered call selling. But as an investor you should demand both a great dividend income as well as sell covered calls with the smallest probability of having to render in your shares.
Good luck in your investments!
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PFI,
Did you sell WB before monday? I hope you did..
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Well – Unfortunately, I didn’t get all the way out. I sold a portion of my WB portfolio prior to Monday, but not everything. I am planning a follow up post on the details in a day or two!
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