SOLD -1 GILD 100 17 NOV 17 90 CALL @1.00
Adjusted Cost Basis $87.70
Just a few hours ago I didn't see any chance of turning a profit on this investment any time soon. Unexpectedly the stock rallied over 7% today (now up 25% off lows) and above the average year end analyst target.
Expected Outcomes:
- With selling off the 'unlimited upside', if GILD is above 90 (19 delta strike) by Nov expiry and the stock gets called away, I'll at least have brought in 3.76% on my adjusted cost basis (plus dividend yield).
- If the stock is under 90 by Nov expiry the call expires worthless and I keep the credit to reduce my cost basis, and sell another call. This is about 80% probable this point, at 10% below the 90 strike and more than 2 months to expiration. If the stock pulls back sharply I will likely buy back the call and walk away with most of the profit, and aim to sell another call on the next rally in GILD.
I've been sitting on this dog for over a year, suffering through a 27% draw down at the low in June. The stock dividend yields 2.75%, which is at least something while you wait.
The stock is well rated, excellent price to free cash flow, but a 'value trap' with questionable earnings growth long term. Some of the apparent catalysts for todays big up move were acquisition of KITE and FDA approval of new class of gene therapy drugs.
So I jumped at the chance to make this into a profitable trade after waiting for many months. My main goals are to bring in cash flow, reduce cost basis, and reduce positive deltas to form a more neutral portfolio. Yes, it's entirely possible GILD could be worth double what I paid for it in a couple years and I'll have walked away with chump change. Or the market gets a long over due pullback and it's another year of sideways moves in the $65 - $90 range. Who really knows for certain what will happen?
Adjusted Cost Basis $87.70
Just a few hours ago I didn't see any chance of turning a profit on this investment any time soon. Unexpectedly the stock rallied over 7% today (now up 25% off lows) and above the average year end analyst target.
Expected Outcomes:
- With selling off the 'unlimited upside', if GILD is above 90 (19 delta strike) by Nov expiry and the stock gets called away, I'll at least have brought in 3.76% on my adjusted cost basis (plus dividend yield).
- If the stock is under 90 by Nov expiry the call expires worthless and I keep the credit to reduce my cost basis, and sell another call. This is about 80% probable this point, at 10% below the 90 strike and more than 2 months to expiration. If the stock pulls back sharply I will likely buy back the call and walk away with most of the profit, and aim to sell another call on the next rally in GILD.
I've been sitting on this dog for over a year, suffering through a 27% draw down at the low in June. The stock dividend yields 2.75%, which is at least something while you wait.
The stock is well rated, excellent price to free cash flow, but a 'value trap' with questionable earnings growth long term. Some of the apparent catalysts for todays big up move were acquisition of KITE and FDA approval of new class of gene therapy drugs.
So I jumped at the chance to make this into a profitable trade after waiting for many months. My main goals are to bring in cash flow, reduce cost basis, and reduce positive deltas to form a more neutral portfolio. Yes, it's entirely possible GILD could be worth double what I paid for it in a couple years and I'll have walked away with chump change. Or the market gets a long over due pullback and it's another year of sideways moves in the $65 - $90 range. Who really knows for certain what will happen?