Options - Covered Calls Update

I periodically employ a conservative 'out of the money covered call' option strategy when I think I can generate some option premium income and I have a strong probability of retaining the underlying security.

In my May 4, 2020 article I disclosed that I had written the following covered calls:

  • Chevron Corporation (CVX) 10 contracts with a $100 strike price - received $1.42/share.
  • Walmart Inc. (WMT) with a $140 strike price - received $0.78/share. *
  • Becton, Dickinson and Company (BDX) with a $280 strike price - received $1.70/share. *
  • Visa Inc. (V) with a $195 strike price - received $1.41/share. *

Trades denoted by * are held in accounts for which I do not disclose details, and therefore, I am not disclosing the number of contracts written.

It is not my intent to part with any of my shares and with V's share price having recently fluctuated slightly above and below my $195 strike price I decided on June 19th to close out my V position at a cost of  $0.86/share. As a result of my decision to close out my position, my profit on this option trade is only $0.55/share (less nominal commission) versus the entire $1.41/share if I had been prepared to take my chances that V's share price would remain below $195 by the end of June 19th.

By closing out my position I have retained the underlying V shares and have written July 17th covered calls with a $205 strike price for which I received $2.08/share.

The share price for WMT and BDX has closed well below the respective strike price of the covered calls (see above) and have expired worthless meaning I retain 100% of the option premium I collected and the underlying shares.

While the reduction in the market value of my WMT and BDX investments far exceeds the option premiums I collected, I am not concerned. My intent is to retain these shares for the long-term and I really don't worry about a drop in the share price; I am not an 'active' investor who continually trades in an effort to generate a profit.

At this point, I have no intent to write new WMT and BDX covered calls and am looking to add to my equity positions in these two companies on weakness.

CVX's share price has closed below my $100 strike price so these covered calls have also expired worthless. CVX's share price did exceed my strike price earlier in June but within the past few business days retreated to the current ~$90.60 level. My intent is to once again write out-of-the-money covered calls but I will patiently wait to do so until such time as I think circumstances are more opportune.

Final Thoughts

As it turns out, V's share price retraced to below my $195 strike price by market close. Had I not closed out my position when shares were trading higher earlier in the day I could have generated more income. I am not disappointed, however, as this option trade was profitable.

On the whole, I am pleased with the outcome of my May 4th option trades in that I was able to generate ~$5000 in additional income in a span of roughly 1.5 months AND I retain my underlying shares.

Until my next update....stay safe and stay focused.

I wish you much success on your journey to financial freedom!

Thanks for reading!

Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

Disclosure: I am long CVX, WMT, BDX, and V.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.