JPatrick said:
Just a couple of thoughts. I don't know when the div is paid, but if it is anywhere close to the strike price and the stock is too, you may lose your stock before the div is paid. Also, the commission to sell your stock, if it is called, will likely be higher than the normal buy/sell commission. You should find out. Of course, all you have mentioned (except the div) will not get a favorable tax rate. If you are going to do a lot of this type of investing you should look to a deep discount broker so you can cut your commission in half or so. Lastly, I believe BAC announces earnings tomorrow, so you may want to consider that before you leap.
A. Discloser- I am not buying BAC today.
B. Early assignment is a risk with American style options, but I don't see that as problem. With a $41.50 purchase price and a $42.50 Strike, there is a $1.00 improvement by the option being assigned early; therefore I do not see the loss of a fifty cent dividend as a problem.
C. I check fees when I switch brokers, when they get too high or the service declines I switch again. My broker charges the same rather its a stock sale or an option excise/assignment. The $15 stock
purchase covers up to 1000 shares. The $15 option write covers up to 10 contracts. There are lower fees available, If you meet the active trader rule. Since I never intend to be an active trader, I will never qualify.
d. Since the market puts a strong message to companies about earnings annoucements/expections, earnings release dates may be a good day to purchase, or not. But the very little research I had done before I posted last night clearly pointed out that today was earnings release date for BAC.
e. The purpose of my post last night was to give an indication of how I expect a covered call on a dividend paying stock to work for me.
F. My covered calls are written on stocks held in IRAs. The only stocks not in my IRAs are Drips and I don't write covered calls on them.
One thought that occurred to me--The covered call shows on the
statement as a debit until the option is cleared thru assignment or expiration, which might affect someone's reading the statement and knowing the true account value.
Selling a covered call on a dividend paying stock makes sense to me as it increases the amount of money I expect to make on that stock and increases the total value of my account.