Thinking of selling covered calls for our largest holding.

[MarathonMike]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

 

[Toro]

First, one stock being half your portfolio is a helluvalot, and you should diversify.

Second, if you write a covered call, and you get called away, you will be subject to capital gains.

IIRC

Mac1958 is better at this stuff than I am.

 

[Toddsterpatriot]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

Where is the stock held?
Toro is right, over 50% is WAY too much concentration.

 

[Andylusion]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

This is not in a 401K or IRA, where you will get hit with a early withdraw penalty, I assume.

One stock that makes up half the value of the portfolio is generally too much.

I would consider selling off 1/3 of the investment, and re-investing it into something else.

I would, however, consider the quality of the investment. If the stock is in a company that isn't going anywhere ever, like Apple Computer, or something... then I would be less likely to sell the stock. Instead I would just focus on making future stock purchases in other companies, and leave that stock alone.

However, if it is any other company less solid... then I would sell off 1/3, and invest in other stocks to diversify the portfolio.

Obviously never invest in any company with less than a 10-year track record, and/or one that you already have stock in is also a good strategy. Check your existing stock investment, and see which are performing fairly well, and invest in those.

All that said, let me get to the covered calls.

There are qualified, and unqualified covered calls, with rules that apply to dividends, and rules that don't.

In short, you need a tax professional. And not just a tax professional, but a tax professional that deals with investments.

To be honest, I would advise against this. I prefer to keep my transactions as clean and neat as possible. Getting into complex transactions with varying qualifications and rules, is how the IRS nails you. They find some obscure requirement somewhere, and then suddenly you owe $10,000 on a buck twenty five rounding rule.

So having a clean, sale of stock, and reinvesting, to me might cause some short term pain in calculating capital gains, but I think in the long run, the simplicity of the action, will avoid any long term problems.

You'll need a qualified professional to get better advice than that. Perhaps someone else on the forum might know more... but I stand by the KISS ideals of investing. Keep It Simple Stupid.

 

[MarathonMike]

First, one stock being half your portfolio is a helluvalot, and you should diversify.

Second, if you write a covered call, and you get called away, you will be subject to capital gains.

IIRC

Mac1958 is better at this stuff than I am.

I know, right? Just goes to show how the compounding of dividend reinvestment over time in a good stock can grow. Thanks I guess there's no avoiding the dreaded bazillion capital gains calculations.

 

[Toro]

I know, right? Just goes to show how the compounding of dividend reinvestment over time in a good stock can grow. Thanks I guess there's no avoiding the dreaded bazillion capital gains calculations.

Listen, it's a high-class problem to have.

 

[MarathonMike]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

Where is the stock held?
Toro is right, over 50% is WAY too much concentration.

It started off many years ago at about 8% of our portfolio but like I said to Toro through dividend reinvestment, price appreciation and time it got to where it is. We got it via the Money Paper so it's not held in a brokerage account. We take the dividends now, don't reinvestment them in the stock.

 

[HenryBHough]

Bailing out right now is the wisest move if you even think it possible that some Democrat - ANY Democrat- might mysteriously become President in the near future.

True, you'll pay capital gains taxes - the lowest since God-only-remembers-when. But if ANY Democrat is elected you'll be faced with 70% taxes. Or worse.

If you don't believe that any Democrat has a chance then consider selling off about 1/2 of that holdinkg anway because 50% of your portfolio is too much. Then step away from the rest about k2-years out because it's impossible to reasonably guess who or WHAT might come to power after President Trump.

 

[MarathonMike]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

This is not in a 401K or IRA, where you will get hit with a early withdraw penalty, I assume.

One stock that makes up half the value of the portfolio is generally too much.

I would consider selling off 1/3 of the investment, and re-investing it into something else.

I would, however, consider the quality of the investment. If the stock is in a company that isn't going anywhere ever, like Apple Computer, or something... then I would be less likely to sell the stock. Instead I would just focus on making future stock purchases in other companies, and leave that stock alone.

However, if it is any other company less solid... then I would sell off 1/3, and invest in other stocks to diversify the portfolio.

Obviously never invest in any company with less than a 10-year track record, and/or one that you already have stock in is also a good strategy. Check your existing stock investment, and see which are performing fairly well, and invest in those.

All that said, let me get to the covered calls.

There are qualified, and unqualified covered calls, with rules that apply to dividends, and rules that don't.

In short, you need a tax professional. And not just a tax professional, but a tax professional that deals with investments.

To be honest, I would advise against this. I prefer to keep my transactions as clean and neat as possible. Getting into complex transactions with varying qualifications and rules, is how the IRS nails you. They find some obscure requirement somewhere, and then suddenly you owe $10,000 on a buck twenty five rounding rule.

So having a clean, sale of stock, and reinvesting, to me might cause some short term pain in calculating capital gains, but I think in the long run, the simplicity of the action, will avoid any long term problems.

You'll need a qualified professional to get better advice than that. Perhaps someone else on the forum might know more... but I stand by the KISS ideals of investing. Keep It Simple Stupid.

We like the stock obviously and the dividend checks. I was thinking the covered calls would be a way to "chip away" at the size of it while generating some additional income.

 

[MarathonMike]

I know, right? Just goes to show how the compounding of dividend reinvestment over time in a good stock can grow. Thanks I guess there's no avoiding the dreaded bazillion capital gains calculations.

Listen, it's a high-class problem to have.

Well I wasn't trying to brag or anything, just looking for inputs. Thanks for yours!

 

[Toddsterpatriot]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

Where is the stock held?
Toro is right, over 50% is WAY too much concentration.

It started off many years ago at about 8% of our portfolio but like I said to Toro through dividend reinvestment, price appreciation and time it got to where it is. We got it via the Money Paper so it's not held in a brokerage account. We take the dividends now, don't reinvestment them in the stock.

You should have some sort of statement.
It might be a pain, but it is possible to calculate your capital gain.
And at over 50% of your portfolio, you should definitely think about cutting your exposure.

 

[Toddsterpatriot]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

This is not in a 401K or IRA, where you will get hit with a early withdraw penalty, I assume.

One stock that makes up half the value of the portfolio is generally too much.

I would consider selling off 1/3 of the investment, and re-investing it into something else.

I would, however, consider the quality of the investment. If the stock is in a company that isn't going anywhere ever, like Apple Computer, or something... then I would be less likely to sell the stock. Instead I would just focus on making future stock purchases in other companies, and leave that stock alone.

However, if it is any other company less solid... then I would sell off 1/3, and invest in other stocks to diversify the portfolio.

Obviously never invest in any company with less than a 10-year track record, and/or one that you already have stock in is also a good strategy. Check your existing stock investment, and see which are performing fairly well, and invest in those.

All that said, let me get to the covered calls.

There are qualified, and unqualified covered calls, with rules that apply to dividends, and rules that don't.

In short, you need a tax professional. And not just a tax professional, but a tax professional that deals with investments.

To be honest, I would advise against this. I prefer to keep my transactions as clean and neat as possible. Getting into complex transactions with varying qualifications and rules, is how the IRS nails you. They find some obscure requirement somewhere, and then suddenly you owe $10,000 on a buck twenty five rounding rule.

So having a clean, sale of stock, and reinvesting, to me might cause some short term pain in calculating capital gains, but I think in the long run, the simplicity of the action, will avoid any long term problems.

You'll need a qualified professional to get better advice than that. Perhaps someone else on the forum might know more... but I stand by the KISS ideals of investing. Keep It Simple Stupid.

We like the stock obviously and the dividend checks. I was thinking the covered calls would be a way to "chip away" at the size of it while generating some additional income.

If it's not in a brokerage account, how are you going to sell covered calls?

 

[Andylusion]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

This is not in a 401K or IRA, where you will get hit with a early withdraw penalty, I assume.

One stock that makes up half the value of the portfolio is generally too much.

I would consider selling off 1/3 of the investment, and re-investing it into something else.

I would, however, consider the quality of the investment. If the stock is in a company that isn't going anywhere ever, like Apple Computer, or something... then I would be less likely to sell the stock. Instead I would just focus on making future stock purchases in other companies, and leave that stock alone.

However, if it is any other company less solid... then I would sell off 1/3, and invest in other stocks to diversify the portfolio.

Obviously never invest in any company with less than a 10-year track record, and/or one that you already have stock in is also a good strategy. Check your existing stock investment, and see which are performing fairly well, and invest in those.

All that said, let me get to the covered calls.

There are qualified, and unqualified covered calls, with rules that apply to dividends, and rules that don't.

In short, you need a tax professional. And not just a tax professional, but a tax professional that deals with investments.

To be honest, I would advise against this. I prefer to keep my transactions as clean and neat as possible. Getting into complex transactions with varying qualifications and rules, is how the IRS nails you. They find some obscure requirement somewhere, and then suddenly you owe $10,000 on a buck twenty five rounding rule.

So having a clean, sale of stock, and reinvesting, to me might cause some short term pain in calculating capital gains, but I think in the long run, the simplicity of the action, will avoid any long term problems.

You'll need a qualified professional to get better advice than that. Perhaps someone else on the forum might know more... but I stand by the KISS ideals of investing. Keep It Simple Stupid.

We like the stock obviously and the dividend checks. I was thinking the covered calls would be a way to "chip away" at the size of it while generating some additional income.

Oh, so you are actually trying to draw down your investments?
I was assuming you were just trying to reinvest.

That seems like a viable method for selling off your investments.

I personally would not sell a stock to consume the money, just because it was a large portion of the portfolio. I would only sell the stock, to buy new stock, to diversify.

The primary reason that having one stock makeup half the portfolio is a problem is that you might lose a large chunk of the portfolio if that one stock takes a hit.

But of course if you sell off, then it doesn't matter.

In that case, the covered call makes a little more sense, in that it should generate a steady income stream. However, you need to be fairly certain the value of the stocks you are selling, will be fairly stable. If the price goes up, you'll be kicking yourself for losing the added value. If the shares fall too much, you'll take a hit.

If you believe the stocks are stable, then I can see the logic of this choice. I would still consult with a investing professional about the tax ramification. I don't like complicated systems. The more working parts there are on a transaction, the more parts that can bite you in the butt later.

 

[Cellblock2429]

First, one stock being half your portfolio is a helluvalot, and you should diversify.

Second, if you write a covered call, and you get called away, you will be subject to capital gains.

IIRC

Mac1958 is better at this stuff than I am.

/—-/ If you don’t want to be called away (assigned) you can buy back the call or roll it forward to the next expiration date far cheaper than the capital gains tax.

 

[MarathonMike]

First, one stock being half your portfolio is a helluvalot, and you should diversify.

Second, if you write a covered call, and you get called away, you will be subject to capital gains.

IIRC

Mac1958 is better at this stuff than I am.

/—-/ If you don’t want to be called away (assigned) you can buy back the call or roll it forward to the next expiration date far cheaper than the capital gains tax.

Interesting, I've never heard of that.

 

[MarathonMike]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

This is not in a 401K or IRA, where you will get hit with a early withdraw penalty, I assume.

One stock that makes up half the value of the portfolio is generally too much.

I would consider selling off 1/3 of the investment, and re-investing it into something else.

I would, however, consider the quality of the investment. If the stock is in a company that isn't going anywhere ever, like Apple Computer, or something... then I would be less likely to sell the stock. Instead I would just focus on making future stock purchases in other companies, and leave that stock alone.

However, if it is any other company less solid... then I would sell off 1/3, and invest in other stocks to diversify the portfolio.

Obviously never invest in any company with less than a 10-year track record, and/or one that you already have stock in is also a good strategy. Check your existing stock investment, and see which are performing fairly well, and invest in those.

All that said, let me get to the covered calls.

There are qualified, and unqualified covered calls, with rules that apply to dividends, and rules that don't.

In short, you need a tax professional. And not just a tax professional, but a tax professional that deals with investments.

To be honest, I would advise against this. I prefer to keep my transactions as clean and neat as possible. Getting into complex transactions with varying qualifications and rules, is how the IRS nails you. They find some obscure requirement somewhere, and then suddenly you owe $10,000 on a buck twenty five rounding rule.

So having a clean, sale of stock, and reinvesting, to me might cause some short term pain in calculating capital gains, but I think in the long run, the simplicity of the action, will avoid any long term problems.

You'll need a qualified professional to get better advice than that. Perhaps someone else on the forum might know more... but I stand by the KISS ideals of investing. Keep It Simple Stupid.

We like the stock obviously and the dividend checks. I was thinking the covered calls would be a way to "chip away" at the size of it while generating some additional income.

If it's not in a brokerage account, how are you going to sell covered calls?

If I end up doing the covered calls, I would transfer the stock to my brokerage account. I may do it anyway now that we aren't reinvesting dividends.

 

[Toddsterpatriot]

We have a stock that has grown to our largest holding due to dividend reinvestment and price appreciation over many years. I'm an options noob but from what I've read this may be a good time to start selling covered calls on our stock. It's at an all time high and this one stock makes up over half of the value of our stock portfolio. I don't want to sell outright because calculating the capital gains with all the dividend reinvestment will be a nightmare. I appreciate any input from experienced options investors.

This is not in a 401K or IRA, where you will get hit with a early withdraw penalty, I assume.

One stock that makes up half the value of the portfolio is generally too much.

I would consider selling off 1/3 of the investment, and re-investing it into something else.

I would, however, consider the quality of the investment. If the stock is in a company that isn't going anywhere ever, like Apple Computer, or something... then I would be less likely to sell the stock. Instead I would just focus on making future stock purchases in other companies, and leave that stock alone.

However, if it is any other company less solid... then I would sell off 1/3, and invest in other stocks to diversify the portfolio.

Obviously never invest in any company with less than a 10-year track record, and/or one that you already have stock in is also a good strategy. Check your existing stock investment, and see which are performing fairly well, and invest in those.

All that said, let me get to the covered calls.

There are qualified, and unqualified covered calls, with rules that apply to dividends, and rules that don't.

In short, you need a tax professional. And not just a tax professional, but a tax professional that deals with investments.

To be honest, I would advise against this. I prefer to keep my transactions as clean and neat as possible. Getting into complex transactions with varying qualifications and rules, is how the IRS nails you. They find some obscure requirement somewhere, and then suddenly you owe $10,000 on a buck twenty five rounding rule.

So having a clean, sale of stock, and reinvesting, to me might cause some short term pain in calculating capital gains, but I think in the long run, the simplicity of the action, will avoid any long term problems.

You'll need a qualified professional to get better advice than that. Perhaps someone else on the forum might know more... but I stand by the KISS ideals of investing. Keep It Simple Stupid.

We like the stock obviously and the dividend checks. I was thinking the covered calls would be a way to "chip away" at the size of it while generating some additional income.

If it's not in a brokerage account, how are you going to sell covered calls?

If I end up doing the covered calls, I would transfer the stock to my brokerage account. I may do it anyway now that we aren't reinvesting dividends.

Make sure you get copies of all your statements before you close your account.

 

[HereWeGoAgain]

I guess it really matters how much you can make off the options.
We had a shit ton of options in a bank of which we cashed in around a little over a third of them since they'd matured.
Netted around 600k. We left those that hadn't matured in the new owner of the bank hoping they'll go up.
It's a risk but we think it'll be worth it based on the performance of the new owners.
If it doesnt pan out we have our 401k's that are doing extremely well.
Of course the Wife is the Banker and she understands it far better than I do.

 

[Cellblock2429]

First, one stock being half your portfolio is a helluvalot, and you should diversify.

Second, if you write a covered call, and you get called away, you will be subject to capital gains.

IIRC

Mac1958 is better at this stuff than I am.

/—-/ If you don’t want to be called away (assigned) you can buy back the call or roll it forward to the next expiration date far cheaper than the capital gains tax.

Interesting, I've never heard of that.

/——/ I do it all the time. In fact many classes on option trading recommend buying back the call after you made some money rather than holding it until expiration.

Rolling a Covered Call | How to Roll a Covered Call - The Options Playbook