photo credit: FadderUriA few weeks ago, I posted an article about my status on selling Wachovia Covered Call option contracts as one of my passive income streams. I previously mentioned that I had 5 covered call contracts that were set to expire across a wide range of strike prices for my 500+ shares of WB. On the September options expiration day, I had one of these contracts exercised with the other 4 expiring without any action. At the end of the day, I had 400+ shares remaining in my portfolio.
My original goal back in April of this year was to slowly divest a good portion of my WB position. This was a necessary step to diversify my holdings and build a strong dividend-producing portfolio. Instead of selling the shares outright, my plan was to sell covered call contracts spread out across several different strike prices to earn extra income. That way, if the option contracts were not called, I could turn around the next month and continue to earn this income. Between April and September, I earned $964.15 which was a nice income stream. The problem with this approach was that during those months, the price of WB has gone from the upper $20’s to below $10 per share. At one point this week, it traded below $1! As Dividend Growth Investor commented in my first post – I am making this extra income at the expense of the share price dropping over the course of several months. I completely agree with the comment and looking back should have sold most of my position back in April or May. I will add this to my list of lessons learned for stock trading.
photo credit: TheTruthAbout…Well, as you probably already know a lot has happen in those few little days since I first posted about my income generated from selling covered call options. Wachovia was on the brink of financial chaos, similar to Washington Mutual. Then last weekend they worked out a deal with the Federal Government and Citi to basically sell three quarters of their business for around $1 per share. Obviously as a shareholder, I was not pleased with the situation. Well this morning, the next chapter on Wachovia seems to be unfolding. Wells Fargo has announced that it will be merging with all of Wachovia in a deal priced around $7 per share. I am much happier with this news than what came out earlier in the week.
I always look for the bright spot in a bad situation. Yes, I am upset with myself for not exiting out of my position in Wachovia earlier this year. If I had to do it all over again, I would! Earlier in the week, when the Citi deal was announced, many investors panicked and sold. Some of these long time dedicated investors probably sold their positions for under $1. I will admit it crossed my mind a few times, but what would be the point? I decided that I still like some things about WB, or least what was left of it. Instead of selling, I decided to remain confident in what was left of the company and see how things played out. While the $7 share price does not come close to the upper $20’s, it is still much better than $1. I think it is very important in the investment world and in life to not panic. When times are tough you need to stick with your fundamental goals and stay strong. Who knows what will happen over the course of the next few months or years, but I am not going to panic and see how this all plays out. I remain committed to Wachovia, or I guess Wells Fargo into the foreseeable future.
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