Today is ex-div day for PMT and my shares were called away.
music selection: “Good Times” — Chic
One of the risks you take with writing a covered call is that shares can be called away early on or before the ex-div date to allow the counterparty to collect the distribution. Whenever the dividend rate is higher than the remaining time value on the contract, it makes sense for the counterparty to exercise. I came away with a capital gain but missed collecting a second distribution. I was well compensated for taking this risk however.
The shares were originally purchased on 9JAN2017 at 16.69 a share. They sold today for 17.50. Along the way, I collected covered call premiums of 25 cents, 10 cents, and 35 cents. I also collected one 47 cent distribution. That is a total of 1.98 a share over 183 or 23.66% annualized. I did quite a lot better than regular holders of PMT over the period and had lower risk at the same time thanks to my premium income. That is exactly the way covered calls are supposed to work.
I wrote a new cash secured put on PMT this morning. I sold PMT170818P00017500 for 38 cents a share. That trade will be in force for 39 days and yields 20.32% annualized while enjoying 4.04% downside protection against a downward move in the underlying. Twenty percent is an excellent return and well outpaces the long term average of buy and hold S&P investors. I’m happy with this risk-reward profile.
Devour your prey raptors!