Covered Calls: Doing the Math

In this post, I’ll explain why I chose to sell the Mar 105 call options against my MMM stock. This post is also an overview of how I do my covered call technique.

In February, I purchased 500 shares of MMM stock for $101.85/share. I chose this particular stock because it tends to rise Feb through Mar each year and my current chart evidence indicated it was on it’s way to doing the same this year. So, I purchased the stock and I’ve been waiting just letting it rise.

Once the stock reached $105, I took a look at which strike prices were available and the prices at which they were trading. Here’s a look at the strike prices that were available:

MMM Options Chain

Options chain courtesy of OptionsHouse

Since I bought the stock when it was over $100 I was mainly interested in strike prices above that. I didn’t feel the stock would be above $110 by Mar 15th so, I didn’t bother with any strikes above $110. That left me with the $105 strike price. However, you can do the math on any of the listed strike prices to see what your potential profit would be.


Weighing My Options

This is how the trade looks for selling the $105 for March:

Shares or Contracts Purch Price Capital Out Sell Price Capital In Comm & Fees Gain / Loss

% Gain & Loss

500 101.85 50,925.00 105.00 52,500.00 5.90 1,569.10 3.1%
 5    0.00 1.00 500.00 5.00 495.00 1.0%

Selling the March calls would bring in a total profit of $2064.10 (4.1%) over a 1.5 month duration. I then divide my profit by the amount of time I’m required to hold the stock. In this case it would be 1.5.

$2064.10 ÷ 1.5 = $1376.06/month


Here is how this trade would look if I had sold the April 105 call options (which were selling for around $2.00 when I sold):

Shares or Contracts Purch Price Capital Out Sell Price Capital In Comm & Fees Gain / Loss

% Gain & Loss

500 101.85 50,925.00 105.00 52,500.00 5.90 1,569.10 3.1%
 5    0.00 2.00 1,000.00 5.00 995.00 2.0%

Selling the Apr. calls would bring in a total profit of $2564.10 for 2.5 months. Initially, this looks like a much better profit but, take a look at the math:

$2564.10 ÷ 2.5 = $1025.64/month


As you can see, I would profit more per month by selling the Mar. 105 calls vs. the Apr. 105 calls. I do this math prior to selling the call options against any stock I own.

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One thought on “Covered Calls: Doing the Math

  1. Pingback: Sold MMM Calls | Tela's Trading Journal

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