Aug 22 2009 Options expirations

I had several options positions expire over the weekend. Puts I wrote on PCL (Plum Creek Lumber) MDT (Medtronic) and MOS (Mosaic) all expired un-exercised. That capital is now free to be used in new trades. I plan to sit on it for a while until the market dips.

Shares of SLV were put to me; I immediately used these to write Jan2010 calls at a $17 strike price. I was paid $0.50 a share for these, for a total of $450 income on the 9 contracts. If un-exercised, my return will be 2.9% for the trade or 0.6% per month--negligible compared to puts, but acceptable for a covered call since the risk is significantly less. As detailed below, SLV is in my portfolio only to generate income via puts and calls.

I had written covered calls against VZ (Verizon) and MCK (McKesson). VZ was called away, fairly close to my $31 strike price. My MCK calls, however, had a strike of $45--when my shares were called away, I could have sold them on the open market for $56!

That's the risk of covered calls; you may not make as much money as you could have. My initial buy price on MCK was $23.70, so when it was at $44, I was happy to agree to sell it for $45. I never dreamed the price would increase so dramatically in less than two months.

Covered calls

I've written covered calls on the following positions:

McKesson MCK: 2 August $45, paying $2.10 per share
Quest Diagnostics: DGX: 2 August $60, paying $0.65 per share
Republic Services: RSG: 5 October $25, paying $1.15 per share
Avery-Dennison: AVY: 4 October $30, paying $0.40 per share
Verizon: VZ: 4 August $31, paying $0.90 per share