On Monday, I rolled my covered call on GSK.

music selection:  “Love Me Two Times” — The Doors

The previous covered call expired worthless and now I have another opportunity to earn income while potentially collecting dividends.  Glaxo is a great company and I own it at a great price.  I am about 10% out of the money using the same strike as my cost basis.  I was able to sell GSK160415C00043000 for 25 cents a share.  The trade will be in force for 54 days and yields 3.93% on an annualized basis.

This is the basic playbook at the raptor.  Sell written puts until assigned and then sell covered calls until shares are called away.  Make money on both sides of the trade.  I have trades in Dupont, Prospect Capital, and CH Robinson Worldwide to cover in my next three posts M, W, F next week.  I hope to get back to the 8 part series on put writing candidates thereafter.  In the meantime, life in early retirement is fantastic.  I will have lunch with my father today and then probably visit the local arboretum for a long walk.

Devour your prey raptors!

Covered Call GlaxoSmithKline plc (GSK)

Never miss another opportunity to devour prey!

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7 thoughts on “Covered Call GlaxoSmithKline plc (GSK)

  • February 26, 2016 at 3:31 pm
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    Hi Raptor!

    1)Are you still holding MORL and those BDCs?
    2) On covered calls that get assigned and run way past your strike, do you typically re-establish at newer(and worse prices?). I missed this massive run up in the SPY from 180 to 195 selling puts. Makes me wonder holding outright would have been better.

    Reply
    • February 26, 2016 at 3:53 pm
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      Hey JW!

      I still hold MORL and BDCL. BDCL is down sharply both before and after distributions. MORL is down sharply but a winner after distributions. Both are long term (permanent? holdings) and I expect to be vindicated on both.

      On covered calls that blow past I usually just wave goodbye. There is always something priced attractively and yielding my minimum 12% annualized. I don’t ordinarily write options on indexes like SPY. The diversified nature lowers Beta and thus suppresses premiums. You would do better to pick the top 10 holdings of an index and write puts against them individually. Holding the underlying is sometimes better than writing options. That is why the market is willing to reward you handsomely for taking an opportunity risk. With selling options, you are improving your sequence of return and lowering your volatility in exchange for giving up top end upside. It is a better risk/reward profile but not always the highest returning strategy. You will always do better in a down or sideways market selling options than holding the underlying. The only time you “lose” (and losing means winning less) is in a rapidly gaining market. Hope that helps.

      Reply
    • February 28, 2016 at 5:41 pm
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      Writing options on indexes is a doble edge sword but it is worth it, consistency will always win; I have been doing it for a long time, a good example was last year, the SPY was mostly sideways all year long and by year end it lost money; I wrote puts at the nearest strike and sold calls at the nearest strike all year long and ended up more than 10%…the only hiccup was on summer because of the Grexit issue, but still collected premium anyways…

      Reply
  • February 26, 2016 at 4:09 pm
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    Thanks for the really quick reply. Caveat to point #2, how about issues that blow PAST your put? I’m having trouble managing naked puts that go ITM. I get shares assigned, then I cannot sell calls at my original strike to be worth much. If you move the calls down to collect premium, I get called out then miss the eventual rally.

    Would appreciate any insights into this.

    Reply
    • February 26, 2016 at 4:47 pm
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      JW,

      Always start by writing puts on something you’d be happy to own at the strike price. That way, if you get assigned and can’t generate income off the position, you hold for dividends while you wait. My current GSK call is written at the same strike originally assigned and yields a paltry 3.93% annualized (much lower than my 12% target). I’m content to wait and collect 5.42% annual dividends in the meantime. You can sometimes lever out of a position that is down by writing a ratio spread: buy a call and sell two calls at a higher strike. If you do it right, the two covered calls finance the purchased call. You now have a free bull call spread letting you capture double the upside up to the written call price.

      What you have to watch out for is if you are in something that is going to zero. Best to sell early and eat your loss. They can’t all be winners and to quote George Soros, “it isn’t how often you win or lose but how much you make when you do and how little you lose when you do.” Or something like that. I mangled the quote but that is the right spirit. If you want sure bets, buy investment grade bonds and accept the lower return.

      Reply
  • February 26, 2016 at 6:33 pm
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    Thx for sharing the raptor playbook. Interesting to follow…

    When I write puts, I try to avoid assignment and I will roll rather soon than late. What is your approach? You write and if the option goes ITM, you then wait assignment?

    Reply
    • February 26, 2016 at 7:53 pm
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      I almost always take assignment. I never write anything if I wouldn’t want to own the underlying at the strike price. Otherwise, it feels a lot like gambling to me.

      Reply

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