Assigned AAPL Call, Purchase of JNJ and HXL

On 1/25/2017 I sold a call on AAPL with a strike of 125 when the stock was trading at 121.95. The expiration date was 2/24/2017. For selling this I received $105.99 after commission.

I’m using the past tense above because I had an investing first for me. On the evening of 2/8/2017 I received a notification from my Schwab app that my call had been assigned and I had just sold 100 shares of AAPL at $125/share. AAPL was trading at around $130 at the time so I was missing out on approximately $500 extra that I could have made selling on the open market. That’s one of the risks you take by selling options and the reason why you’re able to collect a premium.

I’ve had assignments before but this was the first early assignment. American options (compared with European style options) do have the ability to get assigned early anytime they are in the money.

Most of the time the option wouldn’t get assigned until the expiration date, but in this case it seemed that someone wanted to get those shares so that he could receive the upcoming dividend.

With the extra $12,500 now in cash available to trade I didn’t wait long. Here are the dividend purchases I made:

Johnson & Johnson (JNJ): $7100 invested. Increases annual dividend by $198.40.
Hexcel Corporation (HXL): $3900 invested. Increases annual dividend by $33.

Everyone knows JNJ. With this purchase JNJ becomes my second largest single investment at 7.54% of my portfolio. Even though JNJ may be a little higher priced now, I’m in this game for the long run.

Hexcel Corporation, I’m betting, is new to everyone here. It is a play on the huge backlog of orders that Boeing and Airbus have for their new planes. Hexcel makes the majority of the carbon fiber material used on the latest planes and stands to have huge growth over the next few years because if it. It also pays a small 0.84% dividend that is well covered. This purchase isn’t specifically for the dividends, but that is a nice added bonus!

Altogether, these purchases bring my forward annual dividends up to $6,198.45.

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10 Responses

  1. Scott,

    I’m not familiar with HXL, but I really like the JNJ purchase! I need to add more shares myself. I wouldn’t worry too much about the APPL shares getting called away. You may be able to buy them back later at the same price or lower.

    MDP
    My Dividend Pipeline recently posted…Recent Buys — KO & GEMy Profile

    • scott says:

      Thanks, MDP. Love your recent purchases of KO and GE. I’ll have to buy some more of those too. As far as AAPL, I missed out on a little capital gains but still came out far ahead.

      Scott

  2. Amber tree says:

    As you said, being called away is the risk we run. Good that you invested the money straight away.

  3. Are you still happy that you sold the option? You still made money with the option. Thank you for sharing.

    • scott says:

      Retrospectively I would have done it differently. If I knew it was going to 131, I would have not sold the option and instead elected to trade it on the open market. However, 125 was the price I agreed to sell it at and got to offset it somewhat with the premium that I collected. As you said, I still made money on the trade. So overall it went okay.

      Thanks for commenting!

      Scott

  4. I’ve been thinking of doing some options trading but not sure If I’m ready to take the plunge. The ability to build up some additional income is great but then you’re dealing with the hassle and tax implications of assigned options on the back end which worries me.
    timeinthemarketblog recently posted…My portfolio – February updateMy Profile

    • scott says:

      Options profits are generally treated as short term gains/losses so you’re right that you might pay a little more. But, you only pay taxes when you make money. As far as being assigned, the tax implications of selling are exactly the same as selling 100 shares of the stock as you normally would. This may be short or long term depending on how long you’ve been holding those shares.

      You could always do some practice trades with a paper money account first to get the feel of it too.

  5. Divi Cents says:

    I would love to get me a little JNJ. I’m waiting patiently for a dip.

    Definitely a great core holding for any portfolio.

    Nice buy Scott
    Divi Cents recently posted…Dividend Income – February 2017My Profile

    • scott says:

      Thanks, Divi Cents! I’m starting to focus on buying more of the stocks I already own rather than searching for new ones all the time.

      Scott

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