09-28-2013, 11:18 AM
Ok, so I currently own 765 shares of INTC. I purchased 700 shares, and have accumulated 65 more through reinvesting. Let’s say that I’d like to unload 300 shares.
Assuming a flat open on Monday, I could just sell the 300 shares at the current price of $22.98 for $6894, minus the $7 commission, for a final total of $6887.
Or I could use covered calls to juice my returns a bit. Here’s how I imagine that would work (go easy on me if I’ve botched this, never done it before):
I could write the October $22s for a premium of 1.23 per share. So I would collect $369 in premiums, minus $10 in commissions, for a total of $359 in. If the stock is above $22 when the options expire, they will get called away from me at $22 per share. So I’d collect $6600, less another $10 commission, or $6590. Add that to the premium I collected, and I’d net $6949. A slightly better outcome that the $6887 I’d get for just selling the shares. If the stock is below $22 when the options expire, I keep the $359 premium and start all over again.
Questions:
1) Did I get all of that right?
2) Should I choose a different strike price or expiration date to increase the outcome (relative to just selling outright)?
3) Very sadly, all of my INTC shares are in a regular taxable brokerage account. Is the option premium I collect treated as regular taxable income? Or is it considered part of my capital gains (short term? long term?)?
4) I’ve accumulated the INTC shares at various prices. I assume I want to sell the shares that I bought at the highest prices so as to either minimize the capital gains or perhaps even harvest a slight loss. Is that right? The brokerage should be able to make it easy enough to specify which shares I’m writing the call on, right?
5) Anything else important I’m overlooking?
Thanks in advance for your help!
Assuming a flat open on Monday, I could just sell the 300 shares at the current price of $22.98 for $6894, minus the $7 commission, for a final total of $6887.
Or I could use covered calls to juice my returns a bit. Here’s how I imagine that would work (go easy on me if I’ve botched this, never done it before):
I could write the October $22s for a premium of 1.23 per share. So I would collect $369 in premiums, minus $10 in commissions, for a total of $359 in. If the stock is above $22 when the options expire, they will get called away from me at $22 per share. So I’d collect $6600, less another $10 commission, or $6590. Add that to the premium I collected, and I’d net $6949. A slightly better outcome that the $6887 I’d get for just selling the shares. If the stock is below $22 when the options expire, I keep the $359 premium and start all over again.
Questions:
1) Did I get all of that right?
2) Should I choose a different strike price or expiration date to increase the outcome (relative to just selling outright)?
3) Very sadly, all of my INTC shares are in a regular taxable brokerage account. Is the option premium I collect treated as regular taxable income? Or is it considered part of my capital gains (short term? long term?)?
4) I’ve accumulated the INTC shares at various prices. I assume I want to sell the shares that I bought at the highest prices so as to either minimize the capital gains or perhaps even harvest a slight loss. Is that right? The brokerage should be able to make it easy enough to specify which shares I’m writing the call on, right?
5) Anything else important I’m overlooking?
Thanks in advance for your help!