Like many of my generational colleagues, the baby boomers, I've found that my best intentions about saving for retirement aren't always meeting the mark. I've taken some past 401(k) accounts and combined them into a self-directed IRA with Scottrade. This blog will chronicle the progress of the IRA rescue.
We had a volatile
month, but as October comes to an end, the markets have returned to the levels
they started with. Most of the activity
for Rescue My IRA consisted of roll-outs and adjustments during the correction
that took place mid-month; I did try to set up a couple of new positions with
DIS and QCOM – I was successful with DIS but passed on QCOM for now; and
yesterday I unwound my AAPL position, which is the topic of this post.
With the stock well
above my strike price of 100 for the November calls, and an ex-dividend date
coming up in early November, the timing was opportune to take profits with an
eye towards setting up another position.
I haven’t decided what that will be yet, but I’m working on it.
In the meantime, here
is the final analysis of the AAPL trade, net of commissions and fees:
Bought 100 shares in June
2014 at an average price of $93.81, total position basis $9,380.99
Sold on unwind 100
shares at $10.701.76.
income: -$458.31 (By unwinding, I exchanged the option premium
for additional stock gains in this trade)
Total Net Profit after Unwinding: $909.46
Absolute Return on Investment: ($909.46/$9,380.99) = 9.69%
Annualized Return (130 days): 9.69%*(365/130) = 27.22%
When I wrote my monthly summary a couple of weeks ago, we'd already seen a couple of downward trading days - and I summed it up to the effect that October would likely be spent sailing choppy seas. So far this month, that's exactly how it has turned out.
I have rolled out all of my October positions, so my plan is to wait it out. Over the last few days, I have considered rolling out some November contracts, but with the market trading in this direction I would either have to go farther out - say to March contracts, or begin rolling down my strike prices. Instead of attempting to outsmart things with those kinds of reactions, I will simply stay put and deal with my November expirations in November.
Also, starting last February, I had been building a cash reserve that ranged from 25% to 35% of the account - on October 1 it was around 30%. Now I have begun to think about putting some of that cash into some quality stocks, which appear to be bargains at the moment.
Two choices I have done well with before are QCOM and DIS. Two 100-share positions in these stocks would put about a third of my reserves back to work with good prospects for meeting my annualized return goals.
On the other hand, the S&P is not yet down 10 percent from its highs. That's a rule of thumb I've been using as I think about next steps. So I may wait a few more days before I pull the trigger with a few more buy-writes.
I was traveling on
business on September 30 and October 1, so I didn’t catch my account values on the monthly
close. I’ve had to wait for my statement
to do the monthly update – I received it last night, so at last I can put up
the monthly post.
At the close of last
month’s post, I forecast the results from having seven positions expiring
during the month of September…all seven were in the money at the time, but not
all seven ended up being closed. The
positions were AAPL, CRUS, DIS, FB, JPM, PSA, and SPY; I had forecast gains
totaling $2,318.09, or 1.50% of the starting account value this year, or 18%
annualized. I actually came in pretty
close to the forecast, with 1.51% returns for the month and 18.17% annualized –
not bad, and not something you see very often!
In the days since September
30, we’ve had some down days and up days.
In my post yesterday I wrote up three trades I’d completed last week on
Thursday and Friday, after the market declined by one percent in a day – it was
up by just about that much the next day, so I was able to make a little bit of
money on adjustments.
Here is the monthly summary
of Rescue My IRA statistics for September, based the monthly statement I just
·Total Account Value, 9/30/2014
Market Close: $ 166,533.55 , down slightly from the August close of $166,992.83)
As the month began, I had five positions set to expire with October
contracts. I have already rolled out
three of them: BA, COP, and CRUS; leaving two: FB and IP. This looks to be a shaky month trading-wise,
but if the two positions are called away in the money, they’ll earn about $300,
or .19% of the account value.
That means I will have
another .81% of the account value to make up with call premiums and dividends. The roll outs on BA, COP, and CRUS generated
$409, or .26%, and I am forecasting dividends of $264 or .17% from COP, KRFT,
and T this month. Totaled up, that’s
.62% - so still some work to do if I am going to make my goal of 1%!
That’s it for the September
results of Rescue My IRA. Not bad at
all, but we’re looking at heavy seas ahead.
I guess I’ll stay with the covered call strategy for another month.
I was traveling last
week on September 30 and didn’t have the chance to check my account values at
the market close – so my monthly status report will have to wait until I get my
statement in a few days. In the
meantime, the market kept trading, and we had a volatile day or two. I used the down day on Thursday to make some
adjustments to a few positions – BA, COP, and CRUS – which all had Oct covered
calls written against them.
In BA’s case, I rolled
out from the 130 Oct to the 130 Nov, and netted $129. For COP, I rolled out from Oct to Jan – the sector
is getting beaten down a bit, so I had to go further out on this transaction –
netting $75. Finally, with CRUS, I
rolled out from Oct to Nov and netted $200.
One of my goals with
Rescue My IRA is to use covered calls to make money in down markets as well as
up markets…which is exactly what happened on this trading day!
Here are the position
plans for BA, COP, and CRUS after the most recent trades, as always net of fees
and commissions and assuming I collect dividends through the holding period:
This is a 100-share
position with a basis of $12,937.00, or $129.37 per share. The current covered call is $130 Nov 2014, I
opened the position in September with the $130 Oct.
Total covered call
payments (assumes I collect November): $73.00
return percentage (approx 60 days if held to expiration): 19.06%
This is a 100-share
position with a basis of $8,050.00, or $80.51 per share. I started by selling $80 covered calls, in
the money, with the intention of having a short holding period. Thursday’s dip gave me a chance to roll out
the October contract, so I did.
Total covered call
payments (forecast October and January 2015 ex-dividends): $146.00
return percentage (held approx 120 days): 11.42%
This is a 400-share
position, established in February 2014, with a basis of $8,038.00, or $20.10
per share. I started by selling $20
covered calls, in the money, but have gradually rolled up to $22 covered
calls. I’ve also been able to roll this
position out on a monthly basis and it has been a rewarding experience so far.
Total covered call
payments (no dividend on this stock): $0.00
return percentage (held approx 270 days): 29.34%
I am very
happy with the returns to date on CRUS, but should note that it is a position
that does not meet my usual criteria for a Rescue My IRA trade – it is a 3-star
stock with S&P and doesn’t pay dividends.
Still, things are working out, but it is definitely an exception to my
Since I had a lot of
cash on the sidelines, I thought I might wait for the market to pull back
before putting it back to work. After
thinking about it for a day or two, it occurred to me that there were some
sectors that aren’t booming in this market just yet, so I looked at
underperforming Dow stocks for some leads – I chose BA, and after checking out
XOM, fell back on COP, which I’ve had a good experience with in the past.
Having so many
positions set up to expire in September kept me busy and interested in posting
my trades, so I’m going to try and set the account up so that there are always
at least four contracts coming up each month.
That said, both of these new trades are October covered calls.
Here are summaries of
the position plans for each of the two new positions, net of commissions and
Bought 100 shares at average share
price $129.37 (total $12,937.00)
Sold $130 Oct 2014 covered calls
1) Options Income: = $157.74
2) Dividend Income (no ex-dividend during contract): $0.00
3) Capital Appreciation if assigned at $130.00: $45.00
Total Net Profit if assigned: $202.74
Absolute Return on Investment: ($202.74/$12,937.00) = 1.57%
Annualized Return if Assigned and Dividend Collected (30 days): 1.57%*(365/30)
Bought 100 shares at share price $80.51
Sold $80 Oct 2014 covered call
1) Options Income: = $149.74
2) Dividend Income (October ex-dividend): $73.00
3) Capital Appreciation if assigned at $80.00: -$68.99 Total Net Profit if assigned and dividend collected: $153.75
Absolute Return on Investment: ($153.75/$8,050.99) = 1.91%
Annualized Return if Assigned and Dividend Collected (30 days): 1.91%*(365/30)
Note: I sold an ITM call on the COP shares, so it’s
possible the shares will be called away on the ex-dividend date in early
October. If that happens, the absolute
return will be reduced, but so will the holding period, and results will be as
follows: net gain is $80.75, absolute
return is 1.00%, annualized return is 12.20% - so the trade will still meet my
goal of a 12% annualized return…just barely.
Taking advantage of a
couple of up days in the market, I unwound the ETF SPY position a couple of
days before the September call expired.
Even though it requires two transactions – you have to buy the covered
call to close it, and then sell the shares – I end up saving about $5.00 over
the cost of the paperwork transaction when my calls are assigned. That can boost the return on a transaction in
a way I can quantify, while the opportunity cost of having the funds ready to
reinvest earlier than they might have been otherwise can’t always be quantified
and measured, even though it is a benefit.
The SPY trade was a
short-term one that was in play for 49 days, earning an absolute return of 2% -
that works out to an annualized return of 15% - exceeding my goals for trades,
which is to generate an annualized return of 12%. The fact that the average annualized return
is trending down towards my goal suggests that it’s time to keep some money on
the table, waiting for a market pullback or correction – so I’ll spend a few
days thinking about this strategy before putting the SPY funds back to work.
Here is the final
analysis of the SPY trade, net of commissions and fees:
Bought 100 shares in August
2014 for a total position basis $19,321.00
Sold on unwind 100
shares at $20,135.56.
income: -$419.53 (By unwinding, I exchanged the option premium
for additional stock gains in this trade)
collected (not held through an ex-dividend date): $0.00
Total Net Profit after Unwinding: $395.03
Absolute Return on Investment: $395.03/$19,321.00) = 2.04%
Annualized Return (49 days): 2.04%*(365/49) = 15.23%
Last week the
combination of in-the-money and ex-dividend occurred on my PSA shares, and so
the shares were called away. I’ve held
these shares for more than a year, and while the position did not meet my 12%
annualized returns goal, it was profitable and it beat a savings account. The position also earned income all three
ways, stock gains, dividends, and covered call premiums.
Here at Rescue My IRA,
we call that a Hat Trick.
So – winning!
Between unwinding FB
and JPM, and this assignment, the account is flush with cash. Need to put it back to work!
Meanwhile, here is the
final analysis of the PSA trade, net of commissions and fees:
Bought 100 shares in July
2013 at an average price of $163.59, total position basis $16,359.00.
Called away on
ex-dividend date, 100 shares at $16,982.00.
Total options income: $174.20
Total Net Profit after assignment: $1,342.20
Absolute Return on Investment: ($1,342.20/$16,982.00) = 8.20%
Annualized Return (420 days): 14.58%*(365/420) = 7.13%