DGI Adventure 11-12-16 Rollout Covered Call Option – Valero Energy Corporation (VLO)

Here’s the post which was published on 10/22/16 and outlined the sale of the Nov11 $58 strike contract that was going to expire yesterday.

And here’s a chart of the stock price since then:

image

VLO Chart – Share Price Since 10/22/16 – Courtesy Google Finance

So that covered call was pretty deep in the money yesterday, and if I let it expire, the shares would get called away. I elected to roll the contract out, primarily because VLO goes ex-dividend this coming week on 11/18/16. I want that dividend distribution, and I won’t get it unless I hang onto these shares.

Fortunately I was able to roll out for a net positive to the Dec23 $59.00 strike price.

I bought the expiring contract for $360.08 ($3.59/share + $1.08 commission) and sold the new contract for $385.91 ($3.87/share – $1.09 commission).

So I netted $25.83 in premium income, which divided by $5,900 (the amount of equity that’s now “at risk”) is a 0.44% absolute return. I extended the contract period another 42 days, so that works out to only a 3.80% annualized return.

I could have netted more premium by keeping the strike at $58.50, but I elected to go up to the $59 strike, which I’ll get to keep either way (if I get assigned I get it as capital gains, if I’m not assigned, that means the intrinsic value will have disappeared).

In other words, it’s worth noting, that the 3.80% annualized is only on the net premium of the rollout. I should still get a $0.60/share dividend payment, and if I do end up assigned in December, it means I will realize quite a bit of share price appreciation as well. So the 3.8% wasn’t the only profit built into the trade. By itself, that wouldn’t have been worth it.

I’ve already done quite well with these VLO shares, and this trade keeps that “rolling” so to speak, because it was a net positive and it inched the strike price a little higher, so I’m happy.

Leave a Reply