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.