16 March, 2023 seen 17With bank stocks beaten down, after SVB bank closure in the US, investors are starting to take notice of the potential…
On May 6, 2020, I bought 10 shares of Bank of America (BAC) paying $22.395 per share.
With its quarterly dividend payout of $0.18 per share, this latest buy has a dividend yield of 3.1% and will pay us $1.8 (before tax) every quarter.
The sum might sound small (and it is very small) - but I bought this stock because of other reasons - I plan to increase the total share count to 100 in a reasonable time frame (say one year) and once we have 100 shares start selling covered calls on it. Here I wrote an article for OptionsBrew.com - Covered Call Trade Idea - Generate $100/mo from this Stock
By now BAC stock takes 1.74% from our US stock portfolio.
For the rest of the year, we are looking to take $4.59 (after tax) from this buy, which is about 0.1275% from our $3,600 goal for 2020
2019 in Review and Financial Goals for 2020.
In total BAC now contributes about $6.12 (after tax) yearly to the dividend income portfolio.
I bought this stock on margin, and as a penalty. Penalty for overtrading a while ago, let me explain - In March our portfolio lost about 80% of its value, as I had some naked options trades opened, I faced several margin calls, I lost a lot of good stock, like CSCO, PFE, T, PBCT and was left with high yielding junks, which one after one trimmed their dividends.
At the end of March, I was playing out with ratio call back spread the idea, and set up following call ratio back spread on BAC
- Sold 1 BAC NYSE May15'20 22 CALL @ $2.39
- Bought 2 BAC NYSE May15'20 25 CALL @ $1.09
From this trade setup, I was able to collect a small premium of $0.21
To make it profitable BAC needed to stay either below the strike price of $22.00 - in such case, I would keep the premium. Or for this call ratio back spread really start to work, BAC should rise in the price to at least $27.79 (25+(25-22)-0.21), and even then I would only break even.
With BAC stock hovering around $23 and expiry time fast approaching, there was little to do - yes I could adjust and hope this will work out later, but I decided to close this position with loss and bought back this contract for $100.
My loss from this trade is $80. Sure I could go and buy 100 shares instantly (I have a margin account) and sell a covered call with one-month expiry to collect about $100.
The worst what could happen - after one month BAC would fall another 10 dollars per shares and I would be a bag holder - waiting for shares to recover before selling again covered calls but owning my broker $2,300. Trading on Margin is tempting, but if possible, better avoided.
That's why I decided to play modestly safe and as the "penalty" buy 10 shares of BAC - where I now owe to my broker - $230 which is a reasonable amount which I can pay back without problems.
Starting May 2020, I have decided to switch on covered calls only with exception using cash-secured puts to take back shares if assigned. Also for the month of May, I have a goal to decrease my negative cash balance down to EUR -2.500 + later at the month I have to buy additional 8 shares of PFE (another stock I'm looking to sell covered calls once 100 shares reached)
With this latest buy, my negative cash balance now is -EUR 3.850 + I have to spend additional EUR 280 to acquire 8 shares of PFE later the month. Bringing my cash balance down to negative -EUR 4.150.
Last, but not least I will proceed 50% from this month covered call income to buy PBCT stock, it looks about additional EUR 150. Now we are talking about EUR 4.300 debt.
I need to find at least EUR 1,800 to get it down to EUR -2,500 goal, luckily there are several covered call trades I'm looking to expire in the money and bring back cash + profit. With additional cash installments, I see I can get to my monthly goal. Hard but doable.
To sum it all up - I just didn't have enough money now to buy more than just 10 shares
The Bottom Line
90 shares to go once we will be able to start selling covered calls and generate extra income.