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AT&T Stock | Trading T | Using Puts and Calls to Reduce my Cost Basis

Updated: Mar 29, 2022

Upcoming Trade

I own 100 shares of T (AT&T stock) with an adjusted cost basis of $24.90/share. At the close of the market on Friday, January 28, the share price was $25.21/share.

On Monday, if the share price stays where it is, I plan to sell 100 shares for $25.21/share and sell a put, expiring March 18, with a strike price of $26. Right now, it looks like I can get $1.45/share, or $145 total for the put.

Detailed History

On October 18, 2021, I bought 100 shares of T, paying $25.50/share, or $2550 total. I used those shares to cover a call with a strike price of $26, expiring December 17. I received $60.33 for the call. On December 17, the share price was less than $24, so the call expired. I then owned 100 shares of T, with an adjusted cost basis of $24.90/share. They have been sitting in my account ever since.

On January 7, I qualified for a dividend of $0.52/share, payable on February 1. It is set to reinvest, so I’ll be getting $52 which will buy me about 2 “free” shares next week.

Thinking Behind this Trade

I like this stock a lot and own a larger position in one of my retirement accounts. It pays a reliable dividend and after dropping into the low $20s a few months ago, the share price has nearly recovered to where I originally bought it. And with my dividends set to reinvest, I picked up quite a few extra “free” shares when the price was down in 2021.

My Next Steps

If I enter the trade on Monday, I’ll tie up $2600 until March 18 while I wait for the end of the contract period.

If the share price is below $26 at expiration, I will be assigned to buy back the 100 shares, paying $2600 for them. Even paying more than I sell them for, the sum of the stock transactions plus the premium from the options (-$2550 + $2521 + $60.33 + $145 - $2600) means I’ll reduce my adjusted cost basis to $24.24/share. And if the price goes above $26, the put will expire worthless and I’ll just keep the $145.

If the shares are not assigned back to me, I’ll check the current price and either

  • buy more shares, collect the next dividend and sell another call, or

  • sell another put and try again to buy it back, or

  • let this position go and look for another opportunity

I hope to get it all worked out, reduce my cost basis and own 100 shares before the next ex dividend date, which will probably be in early April.

Risks: I might be taking my profits too early. If the price increases too much, I might not be able to buy back the stock at the price I want, and I might miss the next dividend.

Benefits: Whichever way this works out, I’ll make a profit. If I lose these shares, I’ll still have the shares in my retirement account.


Update on T Options Campaign, March 29, 2022

I ended up deciding not to sell the 100 shares, and instead I wrote (sold) two options contracts, both expiring March 18. 1) I sold a put with a strike price of $24 for $64.33 in income and 2) sold a covered call with a strike price of $26 for $62.33 in income. I would have been fine buying more T at $24 or selling my 100 shares for $26. (I knew only one of those outcomes was possible.)

What happened next?

On February 1, I received a $52 dividend payment that was automatically reinvested in 2.135 shares. On March 18, the share price was $23.17, and I was assigned to buy 100 shares at my strike price of $24. I was fine with that.

Where do things stand now?

Right now I own 202.135 shares of T. The share price today is $23.93. My total expense on this position has been $4763.01 (Adding all my options premium and subtracting the amount I've spent). My average cost per share is $23.56.

What are my next steps?

The current dividend yield is 4.64%, and even though this stock is kind of volatile, I know the company is not going anywhere. I looked at the options chain and I was tempted to sell a $23 put and a $25 call, both expiring in May. I could probably bring in about $75 doing that. But I decided that I have enough exposure to T. I think I'm just going to hold on to the shares and keep reinvesting dividends. I'll keep an eye on it and let you know if I change my mind.

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1 Comment

Well, I went a totally different way with this trade!

When the market opened, T took a dive down to $24.72. I didn't want to sell 100 shares at that price, even knowing I could get more for the $26 put because of the price drop. So instead, I kept the 100 shares and sold a put with a strike of $24, expiring 3/18.

Then, after lunch, the share price went back up to $25.27, so I sold a call, also expiring 3/18, with a strike price of $26.

I was paid $65 for the put and $63 for the call, so received a total of $127.70 after trading fees. That money is mine to keep.

At expiration, if the…

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