5% in 44 Days

I’m in the process of putting on one of my conservative covered call trades in my IRA.

The goal is to own some Elan (ELN) until mid-April and net 35 cents a share.

Many things can go wrong between here and there, such as the bad news about additional opportunistic PML infections that came out last fall.

I’ve spoken to my friend that has been on monthly infusions of Tysabri for three years now, and she’s still convinced that the risk is worth it, and that the alternative of having her disease progress roughly twice as fast under other treatments will keep her on Tysabri.  As far as I know, the program of regular scans to catch the PML infections has prevented any further deaths from that nasty bugs.

In short, the current users of Tysabri don’t have a viable alternative, and the length and quality of life they can expect by taking it more than makes up for the risk.  The monthly infusion with headphones of certainly beats the painful muscle-tissue daily injections she used to endure, as well.

Even if I end up hitting the bid on the calls I’m selling, I’ll net 30 cents a share if the stock gets called away.

At a cost of $7.26 less 60 cents (58 cents after commissions), my net cost is $6.68.   After setting aside two cents for the closing commission, my $6.68 is likely to make me 30 cents by April 17th.  That’s 4.49%, and compares pretty favorably with CD’s, and more than doubles amREITs as a current yield.  If it gets called away, I’ll be ready to re-deploy into amREITs before they pay their next dividends.

The actual compounded return amounts to more than 40% per annum, but only if I make the unlikely assumption that I can do that every 45 days.

If this ELN position doesn’t get called away, I’ll have replaced the shares I bought during the last stock price dip and lost to calls I wrote back then.

Let me repeat:  This is not stock advice.  I have no idea what your situation might be, and all investments require understanding of the investor’s situation.

I’m just telling you something I’m doing in a tax-advantaged account that has some years left before I liquidate and live off it.  From that point of view 40% annual works for me, as does mitigating a loss in asset value if the stock goes down and I hold it for the long term.



One Response to 5% in 44 Days

  1. Loren says:

    Thanks for the lesson.

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