Earlier today, I sold three August 18, 2023 $15.00 Call Options [Symbol: TDS230818C15] and collected a $0.55 per share. However, given the afternoon surge in TDS to above $14, I have chosen to roll up and out. The details are below.
In the same, two-legged, GTC option order:
Buy to Close: (3) August 18, 2023 $15.00 Call Options [Symbol: TDS230818C15]
Sell to Open: (3) November 17, 2023 $17.50 Call Options [Symbol: TDS231117C17.5]
Limit Order Price: Credit of $0.38 per share
Unlocking Value
The family-owned TDS has finally chosen to unlock some of their value. TDS owns an 83% stake in UScellular [USM] and leadership of both entities have decided to explore ‘strategic alternatives’ for USM.
The market has interpreted this as TDS is selling their stake in USM and that it is worth significantly more to someone else than what it is worth buried in the share price of TDS. Perhaps, Dear Reader, you had begun wondering just what I was thinking, sinking money into TDS repeatedly over the last few months. The short answer? I thought the market had become overly punitive of TDS and that there was a far greater intrinsic value to their shares. Unlike the market however, I am not treating the sale of USM as an absolute certainty. First, there is room for interpretation, and second there has to be an interested buyer. Further, it may not happen anytime soon. So, I chose to unlock some value of my own. The portfolio owns over 300 shares, and a covered call is a great way to increase income now in exchange for forfeiting one’s rights to capital gains above the strike price.
Rolling Up and Out
The phrase ‘roll up and out’ means that I raised the strike price and pushed the expiration date out. Doing so for a substantial credit requires near-perfect timing; one has to closely watch the markets and particular stocks. This is what I get paid no money to do. If one waits too long or waits for the share price to climb above their first strike price, rolling up and out can only be done by paying more to close out the existing call option than will be received as premium for selling the new option – a net debit.
Sometimes it is worth paying to roll up and out, particularly if one does not wish to lose their shares. However, it is far nicer to be paid to do so! For those of you keeping score at home, I collected $0.55 + $0.38 = $0.93 per share today. That’s 300 x $0.93 = $279.00. Accounting for the $4.61 in commissions, I am left with $274.39 in option premium that I get to keep regardless of whether the shares get called away or the options expire worthless. Given that the quarterly dividend on those 300 shares (ignoring the 45 shares not covered by the call contracts) is 300 x $0.185 = $55.50, I collected just shy of 5 quarters worth of dividends for a 105-day period, in which I anticipate receiving one actual dividend payment (circa September 30th).
Once the earnings conference call finished, I thought the bulk of the upward move was over. It had leveled out at $13.50 or so – an enormous increase of 75% over the previous day’s close. I sold covered calls that would expire just two weeks out for the equivalent of three quarter’s worth of dividends. And at a $15 strike, I figured I was safe. I felt even safer when after the share price busted through $14, it gradually fell over the next hour or so to back under $13.
Selling the call proved to be a bit impulsive, but I was very interested in ‘ringing the bell’ (to quote a great investor at Cabot Wealth by the name of Tom Hutchinson), collecting a relatively large option premium after a strong upward move in the underlying’s share price. Not long after, TDS blasted back through $14 and got within striking distance of $15. Like Manya from Seinfeld, I’d had enough.
My roll order executed when TDS was trading at $14.55. That gives me another 20% of upward momentum and provides me with two more quarter’s worth of dividends.
Still short of $15, my hope is that TDS settles down here. Outside of their announcement to ascertain options with regard to USM, their quarterly earnings report was not great. Yes, they’re executing on their growth plan, but it is slow going and there is little room for error. If TDS climbs over $17.50 in the next 105 days, I’ll have to let go of 300 shares, possibly all 345 if it makes sense to do so.