A Covered Call Against a High Yielder

I just wanted to share … I like to share ….

So this stock I wrote a covered call against and received $37.05 in premium. The stock went above the strike price of $10 and was called away. The overall Cash on Cash return was 42%. (We bought the stock in 09 for $2,128 and sold it for $3,000 last week. This plus the premium received minus commissions led to a total return of $901.14. This divided by the capital outlay is a return of 42%.)

Hercules Technology Growth HTGC APR			# of shares	Strike Price	Amount Per	Total Amt.	Balance	COC - 2 Months	Overall Return
1/1/2009	B		300		7.02	2127.9	-2127.9	0.017411532
2/23/2010	S	3	APR	10	0.15	37.05	-2090.85	0.104469195
4/17/2010	C		300		10	2991.99	901.14	Mo CF
								18.525	42%

Now, the big question: This was a dividend producing stock that ideally would have liked to have kept at a 7% dividend yield. The good news is I was able to find 2 great, John Hancock Funds – PDT and HDT that deliver higher yield at 7.83% and 7.74%. (one of them is a tax friendly fund and you can view John Hancock funds here - http://www.jhfunds.com/) I placed insurance all around these holdings (if they drop 15% from new highs alerts go off. If they drop 20% from original purchase an alert is sent and if they drop 30% an automatic stop loss order is placed.) I don’t want to try and repeat this because eventually, I will not be able to replace the yield.

Our dividend cash flow from HTGC was $20 a month. From PDT it will be $9.70 a month ($116.48 a year) and HTD will be $9.67 a month ($116 a year) for a total of $19.37 a month. So, I lost a little bit of cash flow …

Writing covered calls against cash flowing assets is not a good strategy in this market … the stocks will get called away. But, I was able to lock in profit (40% worth) and evaluate new holdings. The strategy will be to hold these guys unless dividend is cut or they drop. They are cash flowing assets after all. Covered call options will be written against others solely identified for covered call writing.