My first month! I’m starting my covered call strategy with the goal of earning at least $5,000 per month. It’s exciting and a little nerve-wracking at the same time, I will admit.
I’m going to let you know about all of the stocks I’ve chosen, as well as the details of each call written. So let’s get going with Month #1!
December, 2020
As I stated in My Covered Call Plan, all options for the first several months are being written in a retirement fund. I believe this will be an advantage in recovering from losses and mistakes because of having larger assets and a longer time horizon.
Also according to plan, all stocks that I buy will be companies that are worth holding as a long term investment. If I can’t justify buying them based upon fundamentals, then they don’t belong in my portfolio–no matter how great the premium may be.
Another challenge for this first month is that I had to choose which holdings to sell in order to have the funds to start my strategy. There are several stocks that I’m not willing to let go of, either because of the dividend they pay or because I don’t want to take a chance on losing any price appreciation.
Here are the stocks I purchased this month and the covered call options written on them:
Appian Corp. (APPN)
Appian is a company that I’ve had my eye on for awhile and had already started a small position. It’s a software development platform that helps companies build their own apps and custom software without having professional developers on staff.
Since I started a couple of my own websites a couple years ago, I can appreciate just how much a service like Appian’s will do to help companies have an online presence. Their revenue is derived from subscriptions for their platform, as well as from professional services to aid companies in creating their apps.
The stock price soared in November, more than tripling in price before pulling back some. This volatility, along with great growth potential, has made Appian a great choice for option writing.
I wound up investing a total of 300 shares with a cost basis of $143.97 per share. So 3 option calls were sold at $14.68 per share with a strike price of $145. This represents just over 10% of the total Appian investment.
Etsy, Inc. (ETSY)
Etsy has been a favorite of mine since it was founded, and it’s been growing and expanding. It’s an eCommerce marketplace for unique, vintage, and handmade crafts and gifts. I’ve personally bought many items from Etsy and believe this company has a long way to go.
I bought the stock near it’s all time high, which was a little hard for me to do! I had to go back to my rules and remind myself that the stock was being bought for income, not for price appreciation. As long as it’s a company that I believe will keep growing, it belongs in my income portfolio.
My investment in Etsy is 200 shares at a cost basis of $188.87 per share. Two option contracts were sold at $10.41 per share with a strike price of $190. This represents 5.5% of the total investment.
Fastly, Inc. (FSLY)
Fastly is a content delivery network that makes your internet and apps more secure, more reliable, and faster. As someone living in a rural area that gets so-so internet service, I’ve been looking at this company for awhile now. It’s another company that provides a service I can truly appreciate.
Fastly’s business model gives a better customer experience for it’s clients than the competition, and it’s easier to sign up for their services. So I’m confident that it will continue to grow and gain market share.
My investment in Fastly is 200 shares at a cost basis of $102.66 per share. The two option contracts were sold at $8.22 per share with a strike price of $104. This represents 8% of the total investment.
Fiverr (FVRR)
Fiverr was a novel idea that turned into a great company, in my opinion. I’ve used their services on more than one occasion, so I know there are very talented people in their pool of freelancers.
With so many more people looking for online services due to the coronavirus and so many wanting to work from home, I think Fiverr is one company that will benefit immensely from both sides.
My investment is 100 shares at $204.15 per share. I sold one call option at $13.99 per share with a strike price of $210. This represents 6.8% of the total Fiverr investment.
Lemonade (LMND)
The next stock I chose is Lemonade, and no, it’s not a beverage manufacturer. This insurance company is cashing in on the simplicity of buying insurance online using artificial intelligence. Everything from purchasing a policy to submitting claims to getting an insurance payout can be done completely online.
This concept isn’t new, but Lemonade has taken it to a whole new level of convenience and time saving. Like all stocks, this one isn’t without risk. But it’s definitely a company I’d be willing to hold onto if I had to and see where it goes.
My investment in Lemonade is 300 shares at $92.70 per share. The 3 call options were sold at $9.34 per share with a strike price of $95. This represents 10% of the total investment.
Square (SQ)
Square is a company that offers services to entrepreneurs, such as credit card processing, inventory management, payroll, and more. I was first introduced to them through my daughter, who is self employed and is very happy with how their system works.
With more and more people seeing the advantages of becoming an entrepreneur and running their own business, I think the demand for Square’s services is going to continue to climb.
My investment is 100 shares at $225.89 per share. I sold 1 call option for $11.91 per share with a strike price of $230. This represents 5.2% of the total Square investment.
Sarepta Therapeutics, Inc. (SRPT)
Sarepta is a biotech company based in Massachusetts. It’s got a lot of promise, and over the last year there are signs that it’s getting close to turning the corner and becoming profitable.
There are 43 programs in the Sarepta pipeline, and it just got a big infusion of cash from a licensing deal. So, in my opinion, it’s in a great position at this point for investors.
However, I do feel that this is my riskiest holding right now. That risk is offset by the high premium somewhat, so I feel it’s an appropriate stock for my covered call income portfolio.
My investment in Sarepta Therapeutics is 200 shares at $171.00 per share. The 2 call options were sold at $18.06 per share with a strike price of $175. The premium represents 10.5% of the total investment.
Potential Profit For This Month
Since I wrote covered calls on the full portion of my allotted portfolio, the amount of potential income from selling them is $17,131.88. If any of the stocks get called away from the options being exercised, there will be additional income for the month.
For stocks that do not get called away, the amount of the premium will not be considered income. It will be used to lower the stock’s cost basis, and then another covered call can be written again the next month with a new strike price. Any profit or loss will be recorded when the stock is actually sold.
So even though it looks like I have a tremendous profit for December, none of it will be realized until the contract expiration date, which is January 15th. If the market rises, I could see all of the profit, and if it falls, I could see no profit for the moment.
But my goal is to average $5,000 a month in income over the course of one year. Can I make the right moves and create that income? I’m excited to find out!
