CSP Example: WFC

Note: I wrote this memo for private consumption about a month ago. With the decline in WFC, I have re-established a short-put position.


I just got off a 118 day cash-secured put campaign on Wells Fargo. I pegged WFC’s worth at about $60 or more, and it has been trading in the $51-56 range since April.

It isn’t rich enough for me to write covered calls on, or cheap enough for me to add to the position directly (I require a margin of safety of 20%).

wfc_csp

On April 10, I wrote 1 $54 put 25 days out (5/5 expiry), when the stock was trading at $54.42. After earnings, which came out right away, the stock dropped to $51.53, when I wrote another put $52 put, expiring 5/12. I booked premiums of $128 and $158, after commissions.

On 5/5, the stock traded above $54, and the first put expired worthless. On 5/12, the second put also expired OTM, with the stock trading around $53.

I immediately wrote 2 more $53 puts ($128), and rolled them over twice. Once on 5/25 ($174) and 6/8 ($126). On July 14, the stock ended above $53, and I let the position expire.

Overall, I collected $714 in premiums after commissions (on $10,600 cash outlay) over 118 days, for an annualized return of 33.5%.

This campaign reduced by effective buy price to $49.50, even though I ended up not buying any shares.

If WFC falls to $53 or below, I will probably embark on a new CSP campaign.

 

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