Review and a comparison.
Lets look at Encana (ECA) and "if" one was to have done a buy and hold with this investment.
On January 17, 2013 I have bought 500 shares of ECA and held it while selling covered calls on this position. Lets break it down to each of the three segments, Dividends, option, Capital Gains as if it were sold today July 3, 2014 and the option trade at the date that it was called away.
Buy and Hold Option trading
Dividends: $ 405.00 $ 304.80
Options: $ N/A $ 1792.56
Cap. gains $2740.00 $ -1050.00
Total $ 3145.00 $ 1047.36
Based on the beginning price of $19.10, and today's closing price of $24.58 leave a gain of $5.48 per share. At that time the shares had rallied back up to $20.10 and the price change pattern suggested that it'll pull itself back from that price. Regardless what occurred after the trade doesn't really matter as much as making a decision and sticking with it. In this case the stock price increased further to $26.52 on June 13th and has since pulled back.
I for one am still not impressed with the management changes and the number of assets that they are selling to recapture core business segments. Only time will tell if my views are correct or not but right now the market is giving management the sign of approval.
On a percentage bases compared to the length of time with this investment, 19 months vs 15 months.
for the buy and hold it works out to be (all in) $6.29 per share vs 2.095 or 32.9% vs 11.0%. At first glance it looks bad for the covered call option method. Yet the share price could have declined from March (after it was called away) all this is a reflection about hindsight and paper gains, at the end of the day one cannot predict which way share prices are going. With the markets at all time highs ECA could decline as the over all pulls back or that the weather this summer isn't so hot at everyone is consuming natural gas (NG) to cold their home and office space.
Speaking of Natural gas the price of NG shot up at the end of February to $6.20 per million BTU's from a price of $3.50 range for the year earlier. This price increase was not unexpected and I have commended on it in an earlier posting and the price has settled in the $4.50 range since.
I'll look at the total return of all trades to do a fairer comparison as additional trades have been done within this account during the same time period so it would be prudent to include those trades to see if the overall course is equal to or better then the buy and hold methods.
Till then Happy trading.
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