Covered Calls, Dividends & Passive Income

So as I wrote in my previous post July Covered Calls Part I, I had a not so favorable Covered Call trade with STLD. I learned a lesson and need to keep moving on. Just on a side note STLD posted record profits on July 22^nd and a second quarter net income increase of 124%. It did nothing for the stock. The market has decidedly moved against raw material producers and not much is going to change that in the short-term. Is there a buying opportunity here, probably, but I’ll save that for another post.

Given the overall move in the market against raw materials and specifically oil; on July 8^th I decided to write a Covered Call on UltraShort Oil & Gas ProShares (DUG). I did a “Buy / Write” and sold two July $33 calls. The transaction looked like this:

Well this was much better. I covered my loss on STLD and made an extra $224.

The Call ended up being assigned because the closing price on July 18^th of $34.20 was above the $33 strike price. Yes, I could have made an additional $240 if I would have owned the stock outright, but I’m happy with my return. The return on my investment with the Call premium was 2.5% in 11-days. Annualized it’s over 30%.

I decided to stay with DUG for the August calls. On July 25^th I bought back into DUG at $33.69 and wrote two (2) August $35 calls for a total premium after commission of $358.04.

There is an old saying “Don’t fight the trend“. I think oil is in a downward trend for a while, or at least until the next hurricane comes along (hello Dolly). DUG has been closing solidly above its 50-day EMA and Oil closed below $131 a barrel for several days, which appeared to be a previous support level. At least this is my opinion, but what do I know I still like steel stocks.

I‘ll let you know how my August Covered Call turns out after the August 15^th expiration. I’d be interested in hearing if anyone else out there has been trading or writing Covered Calls on DUG.

One final note, I received a nice comment from a guy on my disastrous STLD call. He has a website called Options for Rookies. I haven’t had time to look at it in too much detail, but it seems like a useful site. I’ll check it out this weekend when I have more time.