Options trade: General Maritime (GMR) covered calls
Last week at November’s options expiration I ended up being put shares of General Maritime [[GMR]] when I was assigned the 7.5-strike put options that I’d sold against it last September.
On Thursday (12/3/09) I sold some May 7.5-strike covered call options against that long position in GMR as the stock rallied nicely above the $7.5 level:
I mentioned in my last post why I decided to go ahead with establishing a small long position in GMR – it’s trading at multi-year lows and the tanker sector may be nearing a turnaround. GMR also has an annual dividend yield of about 7% at these levels.
At the same time, the stock is under performing – its intermediate-term price action has been at best neutral to negative – and may continue to go nowhere for a while or even sink lower. In addition, GMR’s next scheduled dividend payment isn’t until February/March, and there’s no guarantee that the dividend won’t be cut further or even suspended altogether (especially given the company’s recent need to issue more debt).
So, rather than just sit in a position that could be “dead money” for a while, I elected to sell covered calls against it. Worst case, I’ll have at least lowered my cost basis in GMR to below $6 (reflecting a 12% return on the position from the covered call options trade), which also should give me some added flexibility for further similar option trades if GMR drops to the $5-$6 level.
Best case, GMR will be above the $7.5 strike price in May and be called away (assuming I don’t roll out the calls) for a gain of over 20% and, hopefully, I’ll have collected two dividend payments in the interim (for an additional 3.6% return on the position).
