Spring Flowers at Hawksbill Cabin

Spring Flowers at Hawksbill Cabin
Spring Flowers at Hawksbill Cabin

Sunday, November 2, 2014

Rescue My IRA: October 2014 Results

When I was writing the September update, there were signs we’d have a choppy month during October.  That’s certainly what happened – mid-month the market was down by between five and ten percent, but it has since recovered.  Despite the forecasts, I stuck with the covered call strategy, and here at month’s end, I find that the value of my account has held up.

It’s been a good trading month between taking gains on AAPL in my recent “unwind” trade, rolling out the October covered call contracts that were out of the money, and opening some new positions now that October is behind us.  I hope that November is as good – I have quite a few contracts that expire this month, so as usual, I’ll be busy.

Meanwhile, here is the monthly summary of Rescue My IRA statistics for October, based on the market close on the 31st


Account Status:
·        Total Account Value, 10/31/2014 Market Close:  $ 166,725.42, that’s up slightly from the October close)
·        Total Cash Reserve, 10/31/2014 Market Close:  $44,964.42
·        Core Stock Positions (as of 10/31/2014):  BA (100 shares), CNP (400 shares), COP (100 shares), CRUS (400 shares), DIS (100 shares), EMC (400 shares), FB (100 shares), GE (300 shares), IP (200 shares), KRFT (100 shares), PFE (300 shares), QCOM (100 shares), T ( 300 shares), TGT (100 shares)

Performance Metrics:
·         Option Premiums Collected (net, month of September):  $1,024.11 (0.66 %)
·         Capital Gains Collected (net, month of September):  $1,320.77 (0.85%)
·         Dividends Collected (recognized on the ex-date): $ 263.50 (0.17%)
·         Interest on Cash Reserve: $0.30
·         Total, Absolute Return:  $2,608.68 (1.69% absolute return, annualized return
20.26%) 

Next Month To-dos:

In November, there are five positions with covered calls that will expire:  FB, IP, PFE, QCOM, and TGT.  Only two of them are in the money as I write this – IP and TGT, but if all of them are called away they will generate about $600 in gains for a 0.39% return on the account value.  That result will be halved if only IP and TGT are called away.

The dividends forecast for November is much better than it was for October:  BA, CNP, PFE, IP, TGT, and QCOM all have upcoming ex-dividend dates.  The total payout could be as high as $420, for a 0.27% return.  If IP and TGT are called away on their ex-dates, that return will be reduced by a third, and if PFE and QCOM end up in the money by their ex-dates, the dividend income will be reduced even further.  We’ll see how things turn out.

Based on these calculations, I’m looking at a month where I can account for about half of my goal of generating one percent per month is accounted for, although if I take the in the money status of IP and TGT into account we’re only a third of the way there.  So there’s plenty of work to be done trading covered calls!

All in all, this is a pretty satisfactory result for the rough seas of October.  Rescue My IRA will stay the course with the covered call strategy.   

Until next month, happy trading!


Saturday, November 1, 2014

Three New Positions: DIS, QCOM, and PFE

While I am gathering data for the Rescue My IRA October results post, I thought I would put up a post about the three positions I added during October.  While I didn’t get the timing exactly right during the choppy market – I was waiting to see if the correction this month would go to 10 percent and it didn’t – I do realize you have to have your funds invested in order to make money.  Sure there’s risk, but you cannot win if you do not play.

That’s part of why I have taken the covered call approach in the first place – it’s an attempt to make money in the market whether stocks are up or down.  The big guys all do it, and I figure that if a small investor like me doesn’t make a go of it as well, they are just profiting off of me and the rest of us.  A kind of exploitation of the middle class I suppose (no apologies for the politics!).

I added DIS earlier in the month and then on October 31, the last trading day, I added QCOM and PFE.  There not earth shakers by any means, but they are good examples of my preferred steady, small bites approach.

Here are the position plans for the three stocks, with results reported net of commissions and fees:

DIS

This is a dividend play.  DIS pays an annual dividend in mid-December, I sold a just in-the-money call to collect the premium, understanding that the stock will likely be called away on the ex-dividend date.

Transactions

Bought 100 shares at average share price $87.59 (total $8,758.99)
Sold 1 $87.50 Dec 2014 covered call

Net Profit:

1) Options Income:  = $267.74
2) Dividend Income (December ex-dividend): $0.0
3) Capital Appreciation if assigned at $87.50:  -$26.99

Total Net Profit if assigned on the ex-dividend date:  $240.75
Absolute Return on Investment: ($240.75/$8,758.99) = 2.75%
Annualized Return if Assigned and Dividend Collected (60 days):  2.75%*(365/60) = 16.72%

QCOM

I also planned for this position to bridge the ex-dividend date, which occurs in late November.  The calculations below include the dividend, since the stock was out-of-the-money at the time I set the position up.  If all goes according to this plan, I’ll have a hat trick.

Transactions

Bought 100 shares at share price $78.23 (total $7,822.99)
Sold 1 $80 Dec 2014 covered call

Net Profit:

1) Options Income:  = $75.74
2) Dividend Income (November ex-dividend): $42.00
3) Capital Appreciation if assigned at $80.00:  $159.01.

Total Net Profit if assigned and dividend collected:  $276.75
Absolute Return on Investment: ($276.75/$7,822.99) = 3.54%
Annualized Return if Assigned and Dividend Collected (52 days):  3.54%*(365/52) = 24.83%

PFE

The strategy for this stock also spans the ex-dividend date, which occurs in early November.  The calculations below include the dividend, since the stock was just barely out-of-the-money at the time I set the position up.  With only a few days to go before the ex-dividend date, my hope is to see a dividend run so that the stock will be called away early.

Transactions

Bought 300 shares at share price $29.93 (total $8,980.00)
Sold 3 $30 Nov 2014 covered calls

Net Profit:

1) Options Income:  = $52.24
2) Dividend Income (November ex-dividend): $52.00
3) Capital Appreciation if assigned at $30.50: $2.00

Total Net Profit if assigned and dividend collected:  $106.24
Absolute Return on Investment: ($106,24/$8,980.00) = 1.18%
Annualized Return if Assigned and Dividend Collected (22 days):  1.18%*(365/22) = 19.63%


If the stock is assigned on the ex-dividend date, the holding period is reduced to five days, and the absolute return of $54.24 equates to a 0.60% yield.  That works out to more than 44% annualized – that would be a nice result if it happens!

Friday, October 31, 2014

Unwinding AAPL

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:

AAPL

Shares:
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. 
Total stock gain:  $1,320.77

Options:
Total options income:   -$458.31 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:
Total dividends collected:  $47.00



Net Profit:
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%

Thursday, October 16, 2014

Forecasting More Choppy Seas for the S&P 500

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.

Monday, October 6, 2014

Rescue My IRA - September 2014 Results

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 received.       

Account Status:
·         Total Account Value, 9/30/2014 Market Close:  $ 166,533.55 , down slightly from the August close of $166,992.83)
·         Total Cash Reserve, 9/30/2014 Market Close:  $60,942.02
·         Core Stock Positions (as of 9/30/2014):  AAPL (100 shares), BA (100 shares), CNP (400 shares), COP (100 shares), CRUS (400 shares), EMC (400 shares), FB (100 shares), GE (300 shares), IP (200 shares), KRFT (100 shares), T ( 300 shares), TGT (100 shares)

Performance Metrics:
·         Option Premiums Collected (net, month of September):  -$1,298.37 (-0.84 %)
·         Capital Gains Collected (net, month of September):  $3,526.29 (2.28%)
·         Dividends Collected (recognized on the ex-date): $112.00 (0.07%)
·         Interest on Cash Reserve: $0.38
·         Total, Absolute Return:  $2,340.22 (1.51% absolute return, annualized return
18.17%) 

Next Month To-dos:

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. 


Until my October results post, happy trading!

Sunday, October 5, 2014

Adjusting BA, COP, and CRUS

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:

BA

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 premiums:  $287.23
Total dividend payments (assumes I collect November):  $73.00
Total stock gain at $130:  $45.00
Total, absolute gain on the position:  $405.23
Total, absolute return percentage ($405.23/$12,937.00):  3.13%

Annualized total return percentage (approx 60 days if held to expiration):  19.06%

COP

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 premiums:  $225.23
Total dividend payments (forecast October and January 2015 ex-dividends):  $146.00
Total stock gain at $80:  -$68.99
Total, absolute gain on the position:  $302.24
Total, absolute return percentage ($302.24/$8,050.00):  3.75%
Annualized total return percentage (held approx 120 days):  11.42%

CRUS

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 premiums:  $1,000.333
Total dividend payments (no dividend on this stock):  $0.00
Total stock gain at $22:  $744.00
Total, absolute gain on the position:  $1,744.33
Total, absolute return percentage ($1,744.33/$8,038.00):  21.70%
Annualized total 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 rules.

Saturday, September 20, 2014

New Positions: BA and COP

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 fees.

BA

Transactions

Bought 100 shares at average share price $129.37 (total $12,937.00)
Sold $130 Oct 2014 covered calls

Net Profit:

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) = 19.07%

COP

Transactions

Bought 100 shares at share price $80.51 (total $8,050.99)
Sold $80 Oct 2014 covered call

Net Profit:

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) = 23.23%


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.