Sold FLS

Sold FLS for $107.50, as it was nearing fair value. My profit on this position was effectively decreased, since I chose to buy back calls I'd written on it.

I originally bought FLS for $70, via puts (which paid $5.90) and wrote calls (which paid $4.20). Then I bought back the calls for $25 (ow). Now, I've sold for $107.50. My profit is:

$107.50 + $5.90 + $4.20 - $70 - $25 = $22.60 per share.

That's 32% of the original purchase price. Still, if I had bought FLS outright at $70, and had not written calls at all, my return would have been over 50%. Further, if I had let the calls be exercised, instead of buying them back, I would have made a 29% profit. Was the extra 3% worth the effort? If I was a professional money manager, competing with other professional money managers, sure. Since I'm a "hobbyist" I'm concerned with absolute rather than relative returns, and I think it wasn't worth the trouble.

Bought back FLS calls

The FLS call I wrote was set to expire this month; instead, I bought it back for $25. Ouch.

To recap, I got FLS in July when shares were put to me at a $70 strike price. I was paid $5.90 for the puts. I wrote calls on the shares I was put, at an $80 strike. I was paid $4.20 a share for that part of the transaction. FLS performed far better than I expected, and now I want to keep the stock.

So here's the summary:

(purchase price) - (put premium) - (call premium) + (cost to close call) = effective buy price

or

$70 - $5.90 - $4.20 + $25 = $84.90 effective buy price.

The alternative would have been allow the call to expire and sell at $80:

$80 + $5.90 - $4.20 - $70 = $20.10 profit per share.

FLS is currently trading around $105, so if I sold my shares now, I'd get about $20.10 profit. Buying back the shares will be more profitable if FLS continues to increase in value. If FLS drops before I sell, then I would have been better off letting the contract expire.

Closed OTM puts

Today I closed October puts on FLS and TUP which were way out of the money, for $0.10 a share. All other things being equal, I'd let the puts go until expiration. With the current market drop, I want the cash ready to reinvest in discounted stocks.

When your chickens come home to roost, remember to collect the eggs.

I was put 100 shares of FLS from a put I wrote in May. The command was "sell to open 1 contract of FLSSN. Premium $5.90/share. Strike $70/share. Expiration July."

My income from this put was $590. The stock price was approximately $68/share when the contract expired, so I bought the shares at $70/share ($64.10/share including the premium, $70 - $5.90).

Naturally, I turned right around and wrote calls on my new FLS stock. I wrote 1 contract January 2010 FLS calls at a strike price of $80, for $4.20/share. The period of the call is about 6 months, which is about as long as I'm comfortable with. So, at this point I have bought FLS for $70/share, and I have earned $10.10 ($5.90 + $4.20) on my stock. That's a 14% return (I'm rounding down to keep it simple and account for transaction fees, which vary by which broker you choose). If my shares are called away in January, I will have made a 28.7% return ($80 strike - $70 purchase price = $10. $10 profit + $5.90 put income + $4.20 call income = $20.10 total income. $20.10/$ 70 = 0.287 ). If my shares aren't called away in January, I'll still have the premiums, plus my shares. Here I am not including the dividend, which is a 1.7% yield at current prices.

I have also written August $45 puts on Mosaic. At 36 days, this is a shorter term than I would usually consider (I like a term from two to six months). I chose this option because a)I would be content to buy MOS at $45 and b) this put offered an unusually good return relative to longer-termed options. I would consider $40 and $45 puts on this stock (currently trading at $48).

Compare the August, September, and December puts, at 33 days (1.1 months), 64 days (2.13 months) and 155 days (5.17 months) respectively.































As you can see in the screen cap, the percentage return per month (premium / share price = percentage return. Percentage / time period (in months) = percentage return per month) is unusually attractive for one option; the August $45 put.

Even though the dollar value for the December $45 puts is the highest, the August $45 puts offer the best value. Since I also would be pleased to purchase this stock at that price, I wrote that put. If I wasn't willing to pay $45 for the stock, I wouldn't consider it no matter how nice the return looked.

FLS: When your chickens come home to roost, remember to collect the eggs. When you get income from puts, and then the shares are put to you at your strike price, consider adding to that income by writing calls. Be sure you would be willing to sell at your call's strike price.

MOS: It's your percentage return, not the dollar amount of the premium, that should draw your attention to the stock. No put has value to me if I'm unwilling to buy at the put's strike price.

For both: Write calls only on stocks you'd be happy to sell at that strike price. Write puts only on stocks you'd be happy to buy at that strike price. I write options as a way to generate income within my overall investment strategy, not as speculation.