Those GWRE calls gave us more than a bit of a scare in terms of getting our shares called away, as Guidewire reported blockbuster earnings and the stock spiked last month. Since then, shares have eased back below the 30 mark, giving us a textbook example of why selling covered calls against shares you want to keep is a great income generator.
GWRE closed yesterday at $28.70, so we will pocket the $1.30 per share from the calls we sold, without having to pay a commission on the way out.
Our cost basis for our Guidewire long position is down to $20.20 ($21.50 initial purchase price minus $1.30).
The immediate trend in GWRE is down, but this being a long term position, we will look to sell November or December 30.00 calls as soon as this trade officially clears the books. As I type the November 30.00 calls look attractive, trading at $1.05.
That’d bring an additional 3.7% return in four weeks…roughly 44% annualized…which makes you wonder what types of degenerates are on the other side of these trades!