We were assigned shares of Bank of America (BAC) and General Motors (GM) last week. After factoring in our net debits on the positions, our cost basis is significantly above the current share price for both stocks, even after the big rally over the past two days.
But, as I mentioned last week, both companies are fundamentally sound and both stocks are significantly undervalued, so I am comfortable sticking with them for the long term. We will continue to trade them aggressively to generate income.
Note that Bank of America is scheduled to report earnings on Oct. 17, followed by General Motors on Oct. 25. We may sit these announcements out by temporarily closing the positions and reopening them after we see how the market responds.
While I don’t trust the current bounce, it is giving us the opportunity to sell calls with higher strike prices.
BAC Uncovered Shares
Current Stock Price: $32.33
Cost Basis: $41.24
Action: Sell to open the BAC Oct Week Two (10/14) 32.50 Call
Current Option Price: $0.72-$0.74
Recommended Limit: Set your initial credit limit at $0.73, but adjust as needed to sell a call today
New Cost Basis: $40.51
Expiration: After the close on Friday, Oct. 14
Potential Rate of Return: I am targeting breakeven for this position
GM Uncovered Shares
Current Stock Price: $35.48
Cost Basis: $48.29
Action: Sell to open the GM Oct Week Two (10/14) 36 Call
Current Option Price: $0.88-$0.94
Recommended Limit: Set your initial credit limit at $0.91, but adjust as needed to sell a call today
New Cost Basis: $47.38
Expiration: After the close on Friday, Oct. 14
Potential Rate of Return: I am targeting breakeven for this position