AT&T is an interesting stock that we’ve been involved with since July. We’ve detailed ways to own the stock while selling upside calls to create a sort of super yield position where ideally the stock goes higher and we add income to the trade with call sales. Let’s recap all the moves. First, from July 19th:
I am buying a little stock here at $35.82 with an eye towards averaging down a little, and strongly considering routinely selling a month out 3% out of the money call to super yield this mofo as we get more clarity on the likelihood of approval of TWX, and event that would make this stock a must own in my opinion.
On July 31st, with the stock higher at 39.10 we looked to September to create an over-write:
The stock bounced pretty sharply on their recent earnings report and now with the stock 39.10 it makes sense to start looking to add that super yield in the form of call sales. The most obvious call sale at the moment is in September, where the 40 calls can be sold at .38, giving the stock a little more room to the upside here but adding some decent yield if the stock goes sideways or slightly down. It essentially lowers the cost basis on the original stock purchase.
Then on August 18th a roll for the call and for those newly interested another entry:
For the existing trade, the action is simply to buy to close the Sept 40 calls and sell to open the Oct 39 calls at .38. further lowering the cost basis on the initial entry.
Or starting here….
AT&T (T – $37.50) Buy-Write, buy 100 shares for $37.50, Sell to open 1 Oct 39 call at 38 cents.
So now we have AT&T higher and a bit above the 39 strike, meaning the over-write call is in the money and gains would be capped if the stock continued higher. There are worse positions to be in because the stock is of course profitable. The company goes ex dividend tomorrow, the amount is .49. The stock has run up into the dividend and I think it makes sense to roll the Oct call out to Nov in the next few days. An ideal spot would be with the stock closer to 39 but today a roll from the Oct 39’s to the Nov 40’s is about even money. There’s also the opportunity to lock in profits in the stock with a collar, right now the Nov 37/41 collar (selling Nov 41 calls, buying Nov 37 puts) is close to even money. That locks in the trade below 37 with a little more room to the upside. And finally there’s a 1×2 call spread, the Nov 40/41 1×2 call spread is close to even as well, and essentially acts like leverage if the stock were to go to 41, where it would effectively be adding $1 in additional leverage and an effective sale of the stock around $42.
All of those make sense on a profitable position and it just depends on a longer term view in the stock. We’ll be sure to check back in as we like this position as an educational example that can be used not only in this stock but others in your portfolio.