My old covered call on JNJ expired over the weekend.
music selection: “Hurt” — Johnny Cash
weigh-in: 226.0 (2.0) #loser
I opened a new covered call between 5 to 10% out of the money as is my usual operating procedure. I went a week further out than normal as better liquidity was on offer. I sold JNJ151030C000101000 for 0.25 a share. The trade will be open at the 101 strike for 50 days and yields 5.37% annualized versus the 100.00 cost basis in the underlying shares. Buy and hold investors are settling for a dividend yield of only three percent so this is a huge win for raptor-kind.
If the shares are called away, proceeds will be 1.25 (premium plus a dollar of capital gains). Over 50 days, that is an annualized return of 9.13%. An excellent return but I prefer if possible to hold onto the shares, write more calls, and collect dividends as the share price slowly creeps up over time. Mr. Market gives and takes though so we will be content with either scenario. That is the beauty of putting yourself in a position where the “downside” to your actions is to own a great stock at a great price.
Devour your prey raptors!