C is around $49 and paying $2 as dividend.
The Jan 2008 $45 calls are around $7.40
So, best-case scenario (if one buys the stock and sells a covered call, and if the stock stays or goes up), would be:
Outflow: ($48.55 – $7.30=) $ 41.25 [This is after deducting commissions]
Inflows: Dividends (June 2006 through Jan 2008=) $ 3.00
Final Inflow (Jan 2008 option assignment=) $45
Profit ($45 + $3 – $41.25=) $ 6.75
That’s about 16% on the original outflow
Obviously, downside risk if it goes below $45.
$41.50 + 5% = $43.30 … So, as long as C does not drop another $6 (11%) from it’s current position, I should make 5%.
If it goes back to the $40 level, I should consider repeating a scaled down version of the above — as long as dividends appear safe.
(Updated– July 23rd): I should add that I prefer Chase to Citi, but already own Chase. Also, I expect Chase to be more than a place to “park” money for a few years.
(Updated– Oct 10, ’06): C is $50.80 and the $45-call is $7.80 [net holding = $43] . So, my capital gains are about $3.50 per share if I cash out today. The dividend for the last 5 months adds a little over $.50 to that.
Next question is, should I continue to hold it? Since the combination is now worth $43 (as opposed to $41.25), the remaining dividend @$2 and the $2 increment from $43 (current value) to $45 (call strike) comes to a sum of $4, which a year works out to 9.3%, which isn’t as good as the original, but still good enough to keep me holding the stock.