This is a follow up to my August 21st J.M. Smucker Company article in which I explained how I am employing the use of a conservative call option strategy to generate additional income while I patiently wait for this company's restructuring efforts to pan out.
My objective, albeit ambitious, is to generate ~$7,390 in dividend and option income in one year.
Subsequent to the release of The J.M. Smucker Company’s (NYSE: SJM) Q1 results on August 20th, Mr. Market has lopped off ~$10 from SJM’s share price! I just wish Mr. Market would take a hatchet to other investments in which I would like to initiate a position / increase a position.
As I indicated in my August 21st article, I am a long-term investor and am prepared to be patient while SJM’s management goes through the process of transforming the company’s business. In exchange for this patience, however, I wish to be adequately compensated. I am, therefore, employing the use of a conservative covered call option strategy to generate additional income.
For those unfamiliar with this option strategy, this entails owning shares in a company and granting someone the right to purchase my shares at a predetermined price by a predetermined expiry date. In exchange I collect a premium.
If the stock price rises above the predetermined price before the predetermined expiry date the buyer can exercise their option and I relinquish my shares.
If I do not want to relinquish my shares I can close out my position by buying back the call options I wrote. Depending on various factors, it is entirely possible that the price I pay to close out my position could end up costing me more than the premiums I received.
The covered call option strategy works out well when the underlying stock price closes below the strike price by the time the options expire. In such a case, I retain my shares and I retain the premium.
As an update to my recent SJM article, here are the SJM option related transactions I have executed this week.
I initiated a covered call on August 20 wherein I wrote 4 contracts (the equivalent of 400 shares) to expire September 21, 2018 with a $125 strike price. I received $1.50/share for 400 shares and after commission received $585.
Today (August 22), I closed my position and bought back these calls at $0.10 for a cost of $40 (plus commission) so I have generated ~$535 in revenue.
I have now turned around and written 4 October 2018 $115 contracts for $0.89/share which means I have generated another $356 (before commission).
My game plan at this stage is to continue to write covered calls against my SJM position to generate some cash which I intend to redeploy in more attractive investment opportunities.
I will continue to provide periodic updates on how my SJM option strategy is panning out.
I hope you enjoyed this post and 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 SJM.
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.