My First Real Option DIS
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My First Real Option DIS My First Real Option After 10 months of studying COOL Club, and numerous other sources I just decided to go hot with a small exploratory Covered Call with a small gain but small risk likelihood. I own DIS, and Tuesday morning 5/7 its price was $64.90 and bid/ask was running around .40/.50 for a 1 week 67.5 call (3 strikes out). I have owned DIS for several months and am up about 15%. It is on a slow steady climb and I figured 3 strikes/ 2.50 rise was possible but low likelihood. If it jumped over 67.50 that was over its normal variability. If it jumped over that the price increase would be a good 1 week gain and there would be a good probability it would drop below 67.50 for a buy back. If not, so be it; I would still have the net gain of the Call and the actual hot experience. It filled "DIS May 10 67.5 C" at 10:32 at .45 with a $1.07 commission, no further costs if it expires worthless or gets called. If it gets called it will cost me $1 to buy DIS back or another choice if that is more compelling than DIS. My plan is to do some of these more conservative plays over the next few months to get a better feel for Calls and this game, and eventually work into CSPs. Right now, 10:16 Friday 5/10 DIS is up today .44 at 67.14; .36 from the strike. Over the weekend I'll write a post - mortem to COOL on this trade . Paul and Malcolm, I owe you a reply on GMCR and will put that together also Art Hi Art, It looks like your $67.50 CALL is trading just above $.05 right now. You might consider putting a low buy back in at like $.05 or lower just to avoid a late afternoon push that gets the stock to above $67.50 and thus you would be exercised. If you are sure you are happy with either scenario, expired worthless or exercised, then doing nothing is certainly fine.
On your thought about buying back DIS right away if you are exercised, just remember that that is an action that can trigger a wash sale under the "right conditions". Wash sales happen primarily in taxable accounts and occur when you sell at a loss and then turn around and buy again in less than 30 days (or have bought in the 30 days prior to the sale). If you made money on the sale then there is no problem buying back right away.
I said that primarily it was taxable accounts but it is my understanding that if you sell at a loss in a taxable account and then buy in an IRA within 30 of the sale (can be before or after sale) then you also trigger a wash sale. Just something to be aware of.
Since you are talking about a position that you have a gain on, the wash sale would not apply. I only wanted to bring it up because too often people are cavalier about saying they can buy right back in when in fact that can cause you problems due to wash sale rules.
Looks like your first Covered Call sale was a success. Congratulations! Paul Madison On Fri, May 10, 2013 at 11:25 AM, ARTHUR Christensen <artchris@somtel.net> wrote: My First Real Option
Hi Art, Congrats on pulling the trigger. I would not have made this trade. Fundamentals first. Disney is on a tear and is a what I consider a core stock holding - a stock you would build up a position on over time - and it pays a nice dividend. The company prints money and what money they make, they use pretty wisely. They are in the news because they advertise, not because of a spotlight CEO or a cruise ship disaster. In addition to a well run, thriving business, they are just in the beginning phases of capitalizing on their recent Star Wars acquisition. I recently went to Disneyland and it was interesting to see how they are wedging the Star Wars franchise into an established and popular park. I didn't care for Mickey as Luke Skywalker and Minnie as the Princess, but the Star Wars ride was uber popular... cha ching. And a multi year contract with Netflix just means more exposure and more money. My SSG tells me that the past performance would indicate a good price to purchase DIS is below $55/share. So... I don't own the stock. I own a truck the duck bought a couple of years ago, but no more stock. S&P stock report is 5* strong buy as is Market Edge. Technicals. The charts show a very strong upward slope for the last six months with the price above the 20ema and 200ema. This tells me that there is sufficient demand to absorb and continue to absorb the supply of shares on the market (more buyers than sellers). There was a dip seven months ago that would have been a great entry point. MACD is positive and with an upward slope - positive momentum in the price. The slow stochastics are in the overbought range and have been for at least a month. Same for the RSI. Those two indicators give me pause. The stock may be headed for another dip, but there is no corroborating evidence to say so. Volume only rises around earnings releases which is normal. The third reason I wouldn't have made the trade is the premium. At $0.45/contract, you'll need three contracts to break the $100 guideline which means you have to have 300 shares minimum ($20,000+/-) exposed. In a $100,000 portfolio, that is 1/5 of your capital being exposed. If you made the trade with only one contract, fine, but your premium for $6,700 exposure would only add up to $45 for the week (makes the 20% guideline, but not the $100 guideline). Fourth... I think DIS has a lot more room to run. I think you could see another 10% this year alone if the market continues to set new records and highs. DIS is in EVERYONE's mutual fund, ETF (65% institutional ownership) or on their children's walls, TVs, iPADs and DVRs. If it were in the 75s and I had 20% appreciation on my position in less than a year... yeah, I'd take a look at writing options. But only if I could be paid well for my positions. If I held the stock around earnings release and the premiums swelled on expectations, yeah I'd write a call OTM to capture a call dividend. Otherwise, I'd let it ride and look for more lucrative call premiums. But you've thought about it and it is, after all, your money. You appear comfortable with the downside risks (minimal, imo) and realistic about giving up on potential increased valuation and, most important, you got on base with a solid hit. Good on ya mate! I hope you expire without getting called, and May the force be with you... Malcolm On 5/10/2013 8:25 AM, ARTHUR
Christensen wrote:
My First Real Option After 10 months of studying COOL Club, and numerous other sources I just decided to go hot with a small exploratory Covered Call with a small gain but small risk likelihood. I own DIS, and Tuesday morning 5/7 its price was $64.90 and bid/ask was running around .40/.50 for a 1 week 67.5 call (3 strikes out). I have owned DIS for several months and am up about 15%. It is on a slow steady climb and I figured 3 strikes/ 2.50 rise was possible but low likelihood. If it jumped over 67.50 that was over its normal variability. If it jumped over that the price increase would be a good 1 week gain and there would be a good probability it would drop below 67.50 for a buy back. If not, so be it; I would still have the net gain of the Call and the actual hot experience. It filled "DIS May 10 67.5 C" at 10:32 at .45 with a $1.07 commission, no further costs if it expires worthless or gets called. If it gets called it will cost me $1 to buy DIS back or another choice if that is more compelling than DIS. My plan is to do some of these more conservative plays over the next few months to get a better feel for Calls and this game, and eventually work into CSPs. Right now, 10:16 Friday 5/10 DIS is up today .44 at 67.14; .36 from the strike. Over the weekend I'll write a post - mortem to COOL on this trade . Paul and Malcolm, I owe you a reply on GMCR and will put that together also Art Hi Paul; Thank you for your info.
Right now at 12:40 CDT the Bid/Ask is .02/.03 so I opened a BTC at .02 for the safety of not selling with the need to buy back and to see what happens. Just before I clicked send on it I got this message;
"As
required by the exchange, Interactive Brokers may set a cap (for a buy) or a
floor (for a sell) to
It just filled at 12:43 CDT 2:45 before close. "BOT 1 DIS .02 Comm 1.07, Realized P/L +$40.86." Buying out cost me $2 of the 45 premium plus 1 added commission but worth it to prevent it getting called.
I am now an official Option Trader, 100% winner at that! Got to keep my wits about me, tho and not get careless.
About taxes and wash sales, I forgot to mention I am dealing strictly in a ROTH IRA which shouldn't have any tax consequences for me, but this is certainly a good reminder for others following these messages.
DIS reported earnings this week, so this is another rule I overlooked but dodged a bullet on. Luck only goes so far.
Thanks again Art
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