This position is in Frontline (FRO), a company which owns and operates large oil tankers. This company is attractive as it pays a hefty 3.9% dividend at the current dividend, which could increase as the economy continues to increase, as it is a variable dividend. The company hit a 52-week high of almost $37 in April, and has been in a steady decline since then, but recently seems to have flattened out around $25. Although it originally was purchased around $29, the stock has been providing good call premium revenue, as well as earning the dividend. The current profit/loss info is below:
Based on the current cost basis, the potential annualized return for this position if called at expiration in January would be 27.03%.
Hi, congratulation to your great return for last 2 years. As for the covered call, from the option theory you can replace CC with cash secure put (naked put) cause they are "equivalent", in fact they are not and CSP provide better return in 90% of the time compare to CC, especially when it's dividend paying stock. You might want to do some calculation.
ReplyDeleteAnd from the option theory, Bull Call Spread return is better than CC since your up front payment is less than CC.
Now the kicker is, Bull Put Spread is supposedly equal to Bull Call Spread but they aren't, so
As my understanding of CC, Cash Secure Put, Bull call spread and Bull Put spread (on the same strike price)
The return % is
B.Put.S > B.Call.S > Cash Secure Put > C.C.
The most important thing is your valuation for the stock is correct.
But if you are wrong, B.Put.S lost the least amount of $.
My 2 cents.