Javascript DHTML Drop Down Menu Powered by Drop Down Menu
FullyInformed.com - Options and Stock Strategies For Income

 

  You are here:


Bookmark and Share

 

 

 
Put Selling
Why Sell Puts
Example Trade- Selling Puts
Tools For Picking Naked Put Strikes
Selling Puts Is Superior To Covered Calls
Understanding The Naked Put
4 Basic Rules For Selling Puts
Selling Puts For Profit & Avoid Assignment
Caterpillar Naked Puts
Put Ladder On Barrick Gold Corp
Rolling Put Options Strategy
Covered Calls
Earn 3% With In The Money Covered Calls
Rolling Covered Calls Down
Staying Positive
Other Strategies
Moving Averages On Cisco Stock
Writing Uncovered Calls
Long Straddle
Miscellaneous
Importance Of A Plan, Goal & Objective
Early Warning Tools
Understanding The VIX Index
The Cautious Bull
Averaging Down In Stocks
"Squeaker" Option Trade On JNJ
Dividend Stocks That Cut Dividends
Hedging Downturns With SPY Puts
Defensive Stock Investing
Moving Averages Trading Strategy
My Strategy Explained
Rescue Strategies for Bank Of America
 

 

 
Trade Anatomy
Charities Are An Industry
Fed Understatement - Defying Logic
A Personal Comment On RIM
Exxon - Patience Is A Strategy
VISA - Risk Against Reward
Microsoft- Reverse Put Ladder
Research In Motion - Not For Investing
Thank You Ben Bernanke
Greek Debt Crisis
Dividend Stocks That Cut Dividends
The Cautious Bull Strategy
Defensive Stock Investing

Spreads VS Selling Puts

Thank You Tax Man
What Next For Research In Motion Stock

Latest Microsoft Stock Report

April Options Results
Comparing The Bear Markets Of 2000 to 2003 and 2007 to 2009
Microsoft Puts Are Better Than Gold
Dance Near The Exit
How I Treat My Investing Like A Business
Microsoft - The Ultimate Utility Stock
The Value Of A Plan
Staying In The Game
It's All About Oil
Market Trend: Still Up - But Watch For June

 

Terms
Of Use
 
By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not access or use this site.
Nothing presented is financial advice, trading advice or recommendations. Everything presented is the author's ideas only. The author accepts no liability for its use including errors and omissions. You alone are solely responsible for your own investing and trading. There are considerable risks involved in implementing any investment strategies and losses can be large. Trade at your own risk.

 

Sep 30  / Stocks - BAC 
  BANK OF AMERICA

A Tale Of 2 Investors and 1 Incredible Crash In Stock Value 

An Example Of Staying Positive and Continuing With Your Strategy
Comparing Two Different Strategies To Save A Losing Investment

Two investors approached the collapse of Bank Of America, differently. The first trader sold calls below his cost basis and if exercised, bought back into the stock with whatever capital he had acquired in the exercise. The other trader continued to average down whenever he could no longer sell covered calls. This shows the value of not selling below your cost basis. Both investors have tried to show the stock prices around the time they sold their options.

As a side note, it is interesting how the volatility can be seen in the premiums earned on the various options sold. These premiums have decreased in the last few months as volatility continued to decline in the overall market. It is interesting to note that on Jan 16 2009 Investor 2 sold Feb $10.00 calls for an amazing $1.25 when the stock was trading between a high of $9.32 and a low of $7.00. Investor 1 sold calls on Jan 16 2009 as well, but he sold the Feb $7.00 strike for $1.55. What a difference - Now that's volatility!

 

BANK OF AMERICA - INVESTOR NUMBER 1 - NOT AVERAGING DOWN

This investor bought BAC in June 2008 when the stock had pulled back and he felt it was an excellent entry point.  

STRATEGY BEING EMPLOYED IN DOWNTREND:
A) Not averaging down
B) Selling Covered Calls Below Cost Basis and Break Even
C) Buying back covered call if above strike price
D) Reinvesting exercised amount, if exercised
E) No new capital will be employed
F) Keeping Income From Options & Dividends and not reinvesting it in BAC

 

Situation as of September 2009 Option Expiration. If Oct 18 calls are exercised investor will have lost $7974.00
Largest Capital Amount Committed to this trade at any one time - $33398.00
Below are the trades from June 2008 to September 2009 Options Expiration

Date Stock Price Action Total
Quantity
Of
Shares
Held
Average
Share
Value
Comm.
Share
Purchase
Cost /
(Share
Exercise
Amount)
Total Value
Invested
In Shares
(Share Cost minus
Any Exercises -
does not include
options & Div Inc)
Option & Div
Gain / Loss
Income
Total
Jun 23 08 26.13 Bought 1000 shares @ 26.13 1000 26.14 9.99 26139.99 26139.99    
Jun 23 08 26.13 Sold 10 Calls Jul 25 @ 1.94     22.49     1917.51 1917.51
Jul 18 08 27.49 Expiration Day 10 Jul 25 Calls Exercised 0 0.00 43.00 (24957.00) 0.00 (1182.99) 734.52
Jul 21 08 28.92 Bought 1000 shares @ 28.92 1000 28.93 9.99 28929.99 28929.99    
Jul 21 08 28.92 Sold 10 Calls Aug 30.00 @.57     22.49     547.51 1282.03
Aug 15 08 30.70 Expiration Day 10 Aug 30 Calls Exercised 0 0.00 43.00 (29957.00) (1027.01)    
Aug 18 08 29.77 Bought 1000 shares @ 29.77 1000 28.75 9.99 29779.99 28752.98    
Aug 18 08 29.77 Sold 10 Calls Sep 30.00 @ 1.03     22.49     1007.51 2289.54
Sep 2 08   Dividend 1000 X .64           640.00 2929.54
Sep 19 08 37.48 Expiration 10 Calls Sep 30 Exercised 0 0.00 43.00 (29957.00) (1204.02)    
Sep 22 08 34.63 Bought 1000 shares @ 34.63 1000 33.44 9.99 34639.99 33435.97    
Sep 22 08 34.55 Sold 10 Calls Oct 35.00 @ .83     22.49     807.51 3737.05
Oct 17 08 23.24 Expiration Day 10 Oct 35 calls expired 1000            
Oct 17 08 23.45 Sold 10 Calls Nov $25.00 @ .71     22.49     687.51 4424.56
Nov 21 08 11.47 Expiration Day 10 Nov 25 calls expired 1000            
Nov 21 08 11.87 Sold 10 Calls Dec $13.00 $.66     22.49     637.51 5062.07
Dec 3 08   Dividend 1000 X .32 (Dividend cut 50%)           320.00 5382.07
Dec 19 08 13.80 Expiration Day 10 Dec $13.00 Calls Exercised (Investor was away and could not roll the calls in time to avoid being exercised) 0   43 (12957.00) 20478.97    
Dec 23 08 12.91 Bought 1000 shares (12957.00 / 12.91 = 1003.64 shares) 1000 33.40 9.99 12919.99 33398.96    
Dec 23 08 13.40 Sold 10 Calls Jan 14.00 @ 1.02     22.49     997.51 6379.58
Jan 16 09 7.18 Expiration Day 10 Jan 14 calls expired              
Jan 16 09 7.23 Sold 10 Calls Feb $7.00 @ 1.55     22.49     1527.51 7907.09
Feb 20 09 3.79 Expiration Day 10 Feb 7 calls expired              
Feb 20 09 3.98 Sold 10 Calls Mar 6 @ .38     22.49     337.51 8244.60
Mar 4 09   Dividend .01 X 1000 (dividend slashed to 1 cent)           10.00 8254.60
Mar 20 09 6.19 Expiration Day 10 Calls purchased back for .23     22.49     (252.49) 8002.11
Mar 23 09 7.55 Sold 10 Calls Apr 9.00 @ .48     22.49     457.51 8459.62
Apr 17 09 10.60 Expiration Day 10 Calls Apr 9 purchased back for $1.78     22.49     (1802.49) 6657.13
Apr 17 09 11.00 Sold 10 Calls May 11.00 @ 1.41     22.49     1387.51 8044.64
May 15 09 10.67 Expiration Day 10 Calls May 11 Expired              
May 18 09 11.62 Sold 10 Calls Jun 12 @ 1.03     22.49     1007.51 9052.15
Jun 3 09   Dividend .01 X 1000 shares           10.00 9062.15
Jun 19 09 13.22 Expiration Day 10 Calls Jun 12 purchased back for $1.35     22.49     (1372.49) 7689.66
Jun 19 09 13.25 Sold 10 Calls Jul 14.00 @ .88     22.49     857.51 8547.17
Jul 17 09 12.89 Expiration Day 10 Jul 14 Calls expired              
Jul 20 09 12.58 Sold 10 Calls Aug 14 @ .67     22.49     647.51 9194.68
Aug 21 09 17.46 Expiration Day 10 Calls Aug 14 purchased back for $3.58     22.49     (3602.49) 5592.19
Aug 21 09 17.46 Sold 10 Calls Sep 18.00 @ 1.05     22.49     1027.51 6619.70
Sep 18 09 17.63 Expiration Day 10 Calls Sep 18 Expired              
Sep 18 09 17.63 Sold 10 Calls Oct 18.00 @ .87 1000 33.40 22.49   33398.96 847.51 7467.21
    Overall Loss if Oct 18 strike exercised Approx $7974.00              
 
BANK OF AMERICA - INVESTOR NUMBER 2 - AVERAGING DOWN

Here is the same stock (Bank Of America) but this investor believes in averaging down and will not sell calls below his cost basis or break even point. The results are much better. Trade examples like this convinced me over the years to set up my strategy of how to average down, when to average down and what stocks to trade. See these two articles. "Averaging Down" and "My Strategy".

STRATEGY BEING EMPLOYED IN DOWNTREND:
A) Will average down
B) Will only sell covered calls above cost basis - will use any gain on stock exercised, to reduce overall share price.
C) If no covered call premium, will purchase additional shares and sell calls against most recent share purchase
C) Reinvesting exercised amount, if exercised

 

Situation as of August 2009 Option Expiration. Investor has recovered from the downturn. Investor made a profit of $10205.00 Largest Capital Amount Committed to this trade at any one time - $26605.00

 

As a side note, this investor made enough money that on Aug 24 2009, he purchased 300 shares of BAC for $17.57 - for a total cost with commission of $5280.99. He spent about 55% of his profit from BAC to go back into the shares again. By using some of his profit he determined that his cost basis while 17.57, is actually zero as far as capital is concerned as his trades in this company since July 2008 have paid for these shares. This is what every investor strives for - a profit and lower overall cost.
 

Below are the trades from June 2008 to August 2009 Options Expiration

Date Stock Price Action Total
Quantity
Of
Shares
Held
Average
Share
Value
Comm. Share
Purchase
Cost /
(Share
Exercise
Amount)
Total Value
Invested
In Shares
(Share Cost minus
Any Exercises -
does not include
options & Div Inc)
Option & Div
Gain / Loss
Income
Total
Jul 10 08 21.88 Bought 300 shares @ 21.88 300 21.93 9.99 6573.99 6573.99    
Jul 10 08 21.88 Sold 3 Calls Sep 25 @ .55     13.74     151.26 151.26
Jul 10 08 21.88 Sold 3 Puts Sep 19 @ .65     13.74     181.26 332.52
Sep 3 08   Dividend 300 X .64           192.00 524.52
Sep 19 08 37.48 Expiration 3 Calls Sep $25 Exercised
3 Sep 19 Puts Expired
(300) 0.00 43.00 (7457.00) (883.01)    
Sep 22 08 34.55 Bought 300 shares @ 34.55 300 31.64 9.99 10374.99 9491.98    
Sep 22 08 34.55 Sold 3 Calls Oct 35 @ .72     13.74     202.76 727.28
Oct 17 08 23.24 Expiration Day Oct $35.00 calls expired              
Oct 17 08 23.33 Bought 300 shares at 23.33 600 27.50 9.99 7008.99 16500.97    
Oct 17 08 23.33 Sold 3 Calls Nov $25.00 @ .67     13.74     187.26 914.54
Nov 21 08 11.47 Expiration Day Nov $25.00 calls expired              
Nov 21 08 10.88 Bought 300 shares at 10.88 900 21.97 9.99 3273.99 19774.96    
Nov 21 08 10.88 Sold 3 Calls Dec $13.00 $.71     13.74     199.26 1113.80
Dec 3 08   Dividend 900 X .32           288.00 1401.80
Dec 19 08 13.80 Expiration Day 3 Dec $13.00 Calls Exercised (300)     (3857.00) 15917.96    
Dec 22 08 13.50 Bought 300 shares at 13.50 900 22.19   4059.99 19977.95    
Dec 22 08 13.50 Sold 3 Calls Jan 15.00 @ .72     13.74     202.26 1604.06
Jan 16 09 7.18 Expiration Day Jan 14.00 calls expired              
Jan 16 09 7.44 Bought 500 shares at 7.44 1400 16.93 9.99 3729.99 23707.94    
Jan 16 09 9.24 Sold 5 Calls Feb $10.00 @ 1.25     16.24     608.76 2212.82
Feb 20 09 3.79 Expiration Day Feb $10.00 calls expired              
Feb 20 09 2.88 Bought 1000 shares at 2.88 2400 11.09 9.99 2897.99 26605.93    
Feb 20 09 3.98 Sold 10 Calls Mar 6 @ .45     22.49     427.51 2640.33
Mar 4 09   Dividend .01 X 2400 = $24.00           24.00 2664.33
Mar 20 09 6.19 Expiration Day 10 Calls Exercised at 6.00 (1000)   43.00 (5957.00) 20648.93    
Mar 23 09 7.11 Bought 500 Shares @ 7.11 1900 12.74 9.99 3564.99 24213.92    
Mar 23 09 7.77 Sold 5 Calls Apr 9 @ .53     16.24     248.76 2913.09
Mar 23 09 7,11 Sold 5 Naked Puts Apr 5.00 @ .42     16.24     193.76 3106.85
Apr 17 09 10.60 Expiration Day 5 Calls Apr 9 Exercised
5 Naked Puts Apr 5 Expired
(500)   43.00 (4457.00) 19756.92    
Apr 20 09 8.37 Bought 600 Shares @ 8.37 2000 12.39 9.99 5031.99 24788.91    
Apr 20 09 9.77 Sold 6 Calls May 10.00 @ .62     16.24     354.51 3461.36
May 15 09 10.67 Expiration Day 6 Calls May 10 Exercised (600)     (5957.00) 18831.91    
May 18 09 11.62 Bought 500 Shares @ 11.62 1900 12.97   5819.99 24651.90    
May 18 09 11.91 Sold 19 Calls Jun 14 @ .19     33.74     327.26 3788.62
Jun 3 09   Dividend .01 X 1900 shares           19.00 3807.62
Jun 19 09 13.22 Expiration Day 19 Jun 14 Calls expired 1900 13.45          
Jun 22 09 12.92 Sold 19 Calls Jul 15.00 @ .21     33.74     365.26 4172.88
Jul 17 09 12.89 Expiration Day Jul 15 Calls expired              
Jul 17 09 13.35 Sold 19 Calls Aug 16 @ .19     33.74     327.26 4500.14
Aug 21 09 17.46 Expiration Day 19 Calls Aug 16 Exercised 0 0.00 43.00 (30,357.00) Profit of (5705.10) Share Profit 5705.10
    Investor has started back into BAC - he purchased 300 shares on Aug 24 and sold 3 Covered Calls and 3 Naked Puts for Sep           Total Profit 10205.24
                   
 
 

Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed or presented are financial advice, trading advice or recommendations. Fullyinformed.com is a private website. Everything presented and discussed are the author's ideas and opinions only.
By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not use this site. The author of fullyinformed.com assumes no liability for topics and ideas discussed, errors and omissions, ads and their content and external links. Any corporate insignia used are registered trademarks of their respective company or corporation and are being used for identification purposes only. All material copyrighted by FullyInformed.com. Reproduction in whole or in part prohibited. Copyright 2008

 |  site map  |  privacy policy  |  contact me  |  subscribe  |  exchange links  |  the author of fullyinformed  |