The Money Tree

Safely Generating Income in Retirement

AT&T (T) – Position Closed

Posted by mounddweller on January 7, 2011

Earlier this week I closed out my long-held trade in AT&T (T).  Let me give you a brief history of this trade.  I initiated this trade before I found Ron Groenke and began using his VISIONS software.  My original plan for the trade was to buy the stock, sell a LEAP call against these shares and collect the dividends until called away or the call expired.  Then repeat the process by selling another LEAP call the following year.  Well, as you might expect, my ‘perfect’ trade didn’t play out as planned. 

We all know what happened in 2008.  By late summer/early fall the market began to fall.  By January 2009 my originall LEAP calls did expire worthless but because of the steep drop in the price of AT&T I was unable to write another LEAP call at my original strike price.  At this point I had a number of options (pun intended) available to me to try to recover and manage the position.  However, given it’s relatively small size I instead let it lanquish in my account and for another 17 months did nothing but collect the quarterly dividend.

About midway through 2009 I decided I had to do something.  I had to either accept the loss in capital and move on, or more actively manage the position and attempt to recover my original capital.  I decided the best course of action was to sell puts on additional shares until assigned.  I did one round of naked puts but then decided to just buy additional shares outright because I felt the stock had bottomed.   Finally, in the fall of 2010, I decided to sell the OTM JAN $29 calls. 

It was these JAN $29 calls that lead to me closing out my position.  Earlier this week, someone decided they needed AT&T’s next dividend more than I did.  My calls were assigned early on the day before T went ex-dividend.  I think I got the better end of the deal though as T has since fallen below my strike price of $29. 

At the end of the day I’m pleased at how the trade turned out.  By being patient I was able to turn what could have been a loss into a $934 gain.  My annualized ROIC of 3.53% is nothing to write home about, but it sure beats the $1400 loss I was looking at when T bottomed out in March 2009.

Here is the complete history of this trade:

I like AT&T.  It has a great, stable and reliable dividend.  Thus, I am looking to reenter a position in T.  Earlier today I tried to sell the FEB $28 puts at $0.45.  Unfortunately, my trade did not fill.  I am going to continue following it closely next week in the hope I can find and get filled at a suitable entry point.

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