Today I had the first shares called away from me,and wanted to review the situation. I believe I've discovered another benefit of this CC writing strategy.
By way of background, we (my wife and I) bought 600 shares ($11,500.) of TQNT, CREE, & WIND roughly 5 weeks ago at virtually identical prices of $19 per share. This is new house money, and by rights shouldn't be in the market at all, but we agreed that it was a small enough sum that it could be replaced even if all three companies went to ZERO. We also each own substantially more shares of each company in individual accounts, and have followed them for a long time, so we were reasonably comfortable with the purchase. At the time we agreed that a 50% return sometime before we need the money (1 year) would be terrific, and would give the remaining 90% a boost (CD's and MMF). The plan was to sell covered calls as often as possible at a strike price of 30, a price we would be happy to get, especially in light of the market 5 weeks ago. The market proceeded to drop further, so we waited 2 weeks before selling the calls. We ended up selling 5 of the 6 possible contracts (due to a misunderstanding on the phone), expiring in Aug/Sept for $1550, net of commissions. Since our goal was a 50% return, we looked for a premium and time frame that would allow that, so this met our goal since we could theoretically do this 3-4 times in one year, making roughly 15% each time.
The market has been very good these last few weeks, and I believe the TQNT was called away today. I expect the WIND to be called soon if this rally continues. The CREE has been a laggard (of course, it's my largest single holding).
I always have a problem with valuation and when to sell. Having these shares called away has solved that. There was no internal turmoil about wether to sell or hold on. Even if I mentally set a sell target on my own, I find I always second guess myself when the target is reached. By concentrating on what my goal was in buying in the first place and mechanically having the process run it's course, I have had the most serene investing experience of my life. In addition, I feel under no pressure whatsoever to second guess myself on my long term buy and hold shares.
The reason I'm posting this in such detail is that I am relatively new at options, don't really want to get into the Black-Scholes morass, and have been asked a couple of times by PM how I go about investing in options. In other words, I am the typical JOE 6 PACK (god, I hate that expression and the people who use it).
I'm also posting it because it relates to a rather confused post I made a few days ago on another thread about valuation. (It was late and I was tired). I find that I really don't know what any given stock is worth at any given time, although I think I can generally determine a ball park range. WHAT I DO KNOW is my own financial goal. By trying to invest with a specific goal in mind, I find I make better decisions. I may not make all the money possible, but that isn't my goal anyway.
ARS
EDIT: It's really been nice to be up for a change! |
