Executed My First Covered Call Roll Forward (TransCanada Corporation $TRP)

Not long ago I added a "Covered Call" component to my investing strategy. Then as the markets tanked further I found this tool to be useful as a "Hedge-Lite". The markets have been riding up lately and as outlined before as a risk; the hedges turned to "Sellers Remorse". I sought to preserve my position as the price of TransCanada Corporation ($TRP) rose above my Covered Call's Strike Price.

January 22:

- Original holdings of 244 shares + waiting for another 2 shares from DRIP.
- Wrote 2 March 18 Covered Calls $49 for $0.85 premium per contract.
- Average premium net of commissions: $0.78775
- Total Premium: $157.55
- TRP continued on its upwards trajectory.
- TRP Closing Price: $46.89

January 28:

- TRP rose within range of $48 and hence I became fearful of a quick climb towards $49.
- Added 54 shares @ $47.89.
- Average share price: $39.2530537
- Wrote a final 3rd Call @ $49 for $1.60 premium per contract.
- Average premium net of commissions: $1.021166667
- Total Premium: $306.35
- TRP Closing Price: $48.57

Feb 4:
- TRP Closed above Strike Price: $49.02

February 5:

- DRIP executed, purchased 2 shares @ $47.77
- Average share price: $39.3098
- TRP Closing Price: $49.40

February 22:

- TRP Closing Price: $50.80
- In The Money Calls meant I would be more likely to be assigned and lose the shares.
- Sellers Remorse kicked in and a bit of attachment as I've owned TRP since February 18, 2009. (Literally, 7 years!!!!)
- Wanted higher compensation for my shares, but buying back the Calls would be costly.
- Closing price of the Calls: $2.53.

The solution to my Seller's remorse was relatively simple: Do a Roll Forward. Ok, maybe not THAT simple, but the concept is to buy back the options then write a new set of options to garner a higher premium that can offset the difference in prices.

However, the only way to make up for the losses would be to write a further out Premium. I found my target looking out to the May 20 expiry and a higher Strike price of $52.

Here's how the Roll Forward was executed:

- Bought To Close the 3 outstanding March 18 Calls $49 @ $2.14.
- $655.70 (Closing Premium Paid) - $306.35 (Original Premium Received) = $349.35 loss upfront.
- Wrote 3 new May 20 Calls $52 @ $1.45.
- New Premium: $421.30
- $421.30 - $349.35 = $71.95 Premium Offset and Gain.

End result:

- Covered losses with new money.
- Removed the obligation to sell my shares at a lower than current market price.
- Added a new potential obligation to sell my shares, but at an increased sell price from $49 to $52.
- Extended the Covered Call's "Hedge-Lite" from March to May (two months).
- Maintained dividend potential for the ex-dividend date March 27, but not June 26.
- The extended time gives me an opportunity to re-assess whether I will need the hedge.
- I'm still quite emotional about my stocks and a sense of 7 year long ownership that TRP has given me (Yea, guess I'm old school). Letting go will/would be difficult.

A Distracted Investor's Journey: Investment Goals for 2016

Wow, I've had this post sitting around for quite some time. Better late than never :) I won't polish it too much as quite a bit of time has passed and this post will become less relevant.

When first starting to invest, the idea came from a friend to trade; buy the stock low when it went down then sell higher when it recovered. Sounds simple and it is... when it works. That didn't pan out to riches mostly because my available cash was too small and commissions would eat up most of the gains. Even when my available cash increased I still wasn't successful at trading. Frustrated, I turned to a story about my grandfather who had "millions" in stocks that paid out dividends. That opened my eyes: Passive Income. To this day the majority of my portfolio is geared towards this capital intensive slow and steady strategy. My goals aside from $50k a year in distributions is to continue expanding my investor tool kit and learning different ways to use money to make money. (Another lesson about my grandfather.)

2015 was very interesting as I drifted from different tools and jumped into two major firsts that surprised even myself:

- Using margin (borrowing) to invest for the long term.
- Write options.

Now that I've taken those steps there are more things to learn and hopefully execute upon:

- Explore how to use various Options strategies.
- Understand charting
- Short Selling
- Hedging strategies
- Learn and develop performance metrics.
- Earn an additional $10/Day or $3600/yr from Options. (Work towards the challenge my friend proposed last year)
- Explore and develop more revenue streams.
- Increase Passive Income from stocks.
- Diversify portfolio by sector and geography.
- Keep discipline and increase cash savings.
- Add Real Estate to my assets, ie. buy my own place.

Some of these goals may be somewhat conflicting with one another such as increasing cash savings while both increasing passive income and buying my own place. Definitely, something that would pull me in too many directions and strain resources.