This is an update on my post of July 23rd. I bought Riverbed Technologies (RVBD) on June 12, 2012 at $16.76 per share. Then I sold a call option for income of $18 on June 13th. After commissions of $7.95 I got $145.01 deposited into my account.

You can go back and read the post to get all of the details. On August 9, 2012, RVBD was trading at $19.86. I had sold an option to sell my shares in September for $18. I figured that the stock was going higher than $18 and I might be leaving some money on the table.

So on August 9th, I bought an option to cancel my original trade. This trade cost me $287.73 with the commission. I had already received $145.01 when I sold the option so my net loss on the trade was $142.72. So I bought it for $287 (I bought it high) and sold it for $145 (I sold it low) so the difference was a loss.

On September 21, the stock was trading at $22.26. So my original hunch that the stock was going higher than $18 was correct. I sold my 100 shares for $2226 and after commission I wound up with $2218.10.

So what is the bottom line? I sold the stock for $2218.10. I paid $1675.75. The difference was $542.35. To figure out my gains, I need to subract my loss on the options trade which was $142.72. So $542.35 – $142.72 = $399.63. Then I divide the $399.63 by my original purchase price of $1675.75 to get a gain of 23.85%.

The trade did not work out like I expected. For one thing, the stock didn’t stay below $18 like I thought it might. When it went to almost $20, I decided to get out of the option I sold for income. That cost me some profit, but I felt it was worth it. I was planning on getting 7.39% if the option got exercised. Instead I made almost 24%. My time in the trade was about 13 weeks – from June 12 to September 21.

Another thing was that my stock analysis software is better than I thought. It showed that I could make some good growth on the trade, but not the size of growth that I eventually made. Doing it again, I will probably buy 200 or more shares to get better transaction costs.

My problem is that I limited the amount I would devote to this trading strategy since I was a newbie at writing covered calls and really was just getting my feet wet writing covered calls. You might be wondering, “How am I doing in my account?” Well I am happy to say that my account is doing just fine. But let me back up.

When I was planning on my retirement, it was back in the 80s and 90s. Interest rates were a lot higher then. If you told me that the interest rates paid by money market funds was going to be under 1%, I would have laughed out loud. How can you plan your retirement around money markets paying .005%? Never, never in my wildest dreams did I figure that I was only going to make .005% on my money that was sitting in a money market account. But that is today’s reality.

So I had to find other investment options. I always planned on a low rate of return. You will laugh when I tell you that I planned on a rate of return of 7%. I just knew that I could make 7% on my money. Heck I thought I could make that with some small dividend stocks and money market accounts.

You now know the reality. You know why I was lookoing at part time jobs, when I first retired. I did a short stint at my old job as a consultant on contract as needed. But it wans’t for me. I knew more than the people who I was working for and they knew it. I didn’t realize it but I embarassed them in meeting after meeting. Until, they finally took me aside and told me that my time was up. I didn’t realize they didn’t know what they were doing and that I was telling them what to do. But I was and they got rid of me.

O.K. So I was out of the consulting business. I’m glad I didn’t fall for going back full time. I would have really been screwed. So I needed to make at least 7% on my investments to complete my plan as I planned it back in 1980. Am I doing that?

I put aside a small amount of money into this “writing covered calls” plan. It was a test. I opened an options account with Fidelity.com and got started about the first part of June. Since June, as of today, my account is up 9.23%. So count the moneths on your hand; June, July, August, September, and October. 5 months and I am up 9.23%. If I divide that by 5 and multiply that by 12 to get a yearly rate, I come up with 22.152%.

So ask your question, “How am I doing in my account?” And I will say, “Just fine, thank you.”

For Taking Early Retirement (TER), I hope you are enjoying a great retirement or are close to that day!

Jeremiah John