May Expiration Results - 4 Calls Assigned

Expiration Friday came and went, and as expected, I had four positions assigned. The four are listed below, including the absolute return percentage and the length of the holding:

• CSX, 20.15%, 510 days
• DOW, 13.75%, 330 days
• F, 2.98%, 30 days
• GLW, 16.96%, 510 days

Since I posted recently about CSX, F, and GLW at the following links, the only result I plan to update today is DOW.

http://rescuemyira.blogspot.com/2013/05/im-not-married-to-glw-and-csx.html

http://rescuemyira.blogspot.com/2013/05/not-called-early-on-f.html

I’m looking at getting about $35K back into the market now.  At the beginning of the month, I thought I might follow that old rule of selling in May and going away – my portfolio has positions that expire in June and July, and then there are two per month in August, September, and October – all set up for that conservative philosophy. 

But I’ve come back around to the thought that the market might have the strength to continue testing new highs, and it may even continue this year’s growth trend throughout the summer.  So I need to find some solid, diverse, new positions to hold me over.  That hard work will begin immediately.

In the meantime, here is the analysis of the DOW position, the only one of the four assigned stocks I haven’t posted on recently.

DOW

300 shares, basis $9,554.53, per share average $31.85, assigned at $32.00

Option Premiums:  $934.67

Dividends Collected:  $352.00

Stock Gain:  $27.57

Total:  $1,314.14

Absolute return 13.75%

Annualized return (330 days) 15.21%

Rolling Up CSCO

Earlier this month I rolled out the CSCO position, where I had a $21 strike price. It had a bump up almost $2 per share on Thursday, so I started toying with the idea of a roll up.  It continued to climb on Friday, so I rolled up to a $24 strike with a July expiry.

This is an aggressive trade for me – generally roll ups mean that you are trading historic revenue from option premiums for share gains.  You have to be committed to the trade, in other words.  So I slept on this one, and then I ran the numbers and found that I could increase my annualized return from 24 percent to 28 percent – that was good enough for me.

I don't have a rule in my trading plan to guide me on these roll ups.  I have found pulling the trigger on them a little difficult in the past, but I have done okay on these trades for the most part.  So I think I will make a little decision rule I can follow for future opportunities.

Here’s the analysis of the CSCO position’s current situation.

CSCO

The CSCO position consists of 500 shares, bought in a few lots.  My basis is $19.06 per share, and the stock is trading at $24.  I was selling $21 strikes and rolling them out monthly; this transaction rolled up the July $21 to a July $24 contract.    

Total option premiums:  -$928.93

Total dividend payments (including the forecast July ex-dividend):  $252.00

Total stock gain at $24:  $2,450.71

Total, absolute gain on the position:  $1,773.78

Total, absolute return percentage ($1,773.78/$9,532.18):  23.36% (increase from 19.62%)

Annualized total return percentage (held approx 300 days):  28.42% (increase from 23.88%)

I'm Not Married to GLW and CSX

It’s looking very likely that my two longest held positions, GLW and CSX, will be called away this Friday when the May call contracts expire.  Some marriages don't last as long as these holdings have lasted - I bought the shares starting in November 2011.  As expiration day approaches and assignment seems assured, I thought I might republish my last post on them today, originally dated December 26, 2012 (with some slight edits).

The GLW and CSX Positions – 2012 Performance

As I begin to assess how I’ve done as a covered call investor with the Rescue My IRA approach this year, I thought I might start with a pause and reflect on my two long-standing positions:  the 700-share GLW position, and the 500-share CSX positions.  They currently have May 2013 covered calls written on them, and I have held the shares pretty much since the beginning of the account.

As I reported last month, when I adjusted them with the May roll-out, I have earned a 12% annualized return on them – easily verifiable, since I’ve held them for more than a year.  Now, I’d rather that the positions on these shares were a bit closer in, but given the markets ups and downs, sometimes I take what I can get.

We’ll start first with a look at the basis for the shares.

GLW – 700 shares, purchased in several lots at a total cost of $9,241.88, or $13.20 per share

CSX – 500 shares, also purchased in a couple of lots, at a total cost of 10,861.01, or $21.72 per share

Over the course of holding these shares, I have written more than 10 contracts on each of them, as summarized in the table below:

Calculated on their respective bases, the premiums I’ve generated on these shares work out to 15.7% on GLW and 13.6% on CSX.  These holdings have met my goals of a 12% annualized return on the basis of the covered call premiums alone; however, they’ve also returned dividends along the way, since one of my screening criteria is a requirement for a dividend payment.

My goal on dividends is to find shares that pay between 2 and 5% on an annual basis.  For GLW, assuming I hold the shares through the current May contract, I will have received a total of $276.00 in dividends, adding another 3% to the return, for a total of 18.7%.  On CSX, the dividend amounts are $338.00, or 3.1%, making a total of 16.7% on these shares.

The final component of returns in the Rescue My IRA account is capital gains on the shares.  On the GLW side of the ledger, here is where we have a little bit of a problem – at the current strike price of $13 per share I will take a capital loss on the position of about $160.  That will reduce my absolute return to 16.96% - it still averages out to 12.14% annualized for the position over the course of holding it approximately 510 days.

As for CSX, this stock has been a steady performer in this department – I’ve been writing covered calls at a $22.50 strike price since I first bought the shares, a price that will yield a capital gain of just about $371 on the position.  That works out to an absolute return of 20.15%, which annualizes to 14.42% over the 510-day holding period, slightly better than my goal of 12% annualized.

One of the advantages of using a portfolio model, as I do here with the Rescue My IRA account, is that you’ll have a few positions that exceed your goals, some that fall short, and some that perform right on target.  The GLW and CSX positions are examples of positions that have worked out as planned.

Here’s to more positions that perform as reliably as GLW and CSX have for me over the 18 months or so I have held them.

Here's a link to the December post:

 http://rescuemyira.blogspot.com/2012/12/the-glw-and-csx-positions-2012.html

May Contract Deltas: CSX, DOW, F, GLW

Looking at the four May covered call positions that I currently have in the Rescue My IRA account, all four of them seem highly likely to be called away next Friday when the May options expire.  They are far enough in the money, in fact, that they would likely withstand some turbulence. 

Here are the four positions: 

• CSX, May $22.50 contract, Friday’s close at $25.43, delta 1.00
• DOW, May $33 contract, Friday’s close at $34.46, delta 1.00
• F, May $13 contract, Friday’s close at $14.11, delta 1.00
• GLW, May $13 contract, Friday’s close at $15.10, delta 1.00

As I’ve mentioned in past posts, I like to use the delta as a probability metric as expiration day approaches.  In this case, all four of the stocks are significantly up from my strike prices, so I expect most of these shares to be assigned next Friday.

If that happens, I’ll be selling off two of my longest held positions in CSX and GLW – I’ve had each of these for more than a year and a half.  They’ve been solid performers.  Even though I will take a small loss on the share price for GLW, both positions have met my goal of a 12% annualized return.  My absolute return for CSX is 20%, and for GLW, it is 17%.

Even with the small loss on GLW, I stand to recognize $249 in share gains if the stocks are called away, and I will have somewhere around $35K in proceeds to reinvest.  That’s going to be a little bit of a challenge, I think – my sense of things is that the old bon mot, “Sell in May and go away,” should be the rule of thumb for small-time investors like myself this year.   

I’ll revisit these shares next week after expiration day.  Until then, happy trading!

Roll Outs: CSCO and TLT

At the start of the month, I had six positions with May contracts, and with the market bumping along at all time highs, it seemed possible that all six covered calls might be assigned on expiration day.  As it turns out, my CSCO and TLT positions gradually looked less likely based on their deltas, which I use as a surrogate for covered call probability of assignment, so I rolled them out.

Here’s the analysis of the two positions:

CSCO

The CSCO position consists of 500 shares.  My basis is $19.06 per share, and the stock is trading between $20 and $21.  After rolling up in January and February, I have been selling $21.00 strikes and rolling them monthly; this transaction rolled out May options to July. 

Total option premiums:  $287.59

Total dividend payments (including the forecast July ex-dividend):  $252.00

Total stock gain at $21:  $950.71

Total, absolute gain on the position:  $1,490.30

Total, absolute return percentage ($1,490.30/$9,532.18):  19.62%

Annualized total return percentage (held approx 300 days):  23.88%

TLT

As I mentioned when I first established this 100 share position, TLT is my first ETF in the Rescue My Account.  My basis is $12,329.00 and I am selling $124 strikes.  This transaction rolled out the May contract to June. 

It is a US Treasuries fund and appears to be negatively coordinated to the stock market as a whole.  At the moment it is doing a little below my goal of 12% annualized return, but between a monthly dividend payment and rolling out monthly contracts until it is assigned, I think that performance will track my goals pretty closely.

Total option premiums:  $128.49

Total dividend payments (monthly dividends!):  $51.00

Total stock gain at $124.00:  53.89

Total, absolute gain on the position:  $233.38

Total, absolute return percentage ($233.38/$12,329.00):  1.89%

Annualized total return percentage (held 60 days):  11.52%

Not Called Early on F

Despite being in the money by nearly 75 cents, neither of my two 500 share positions in F was called away when they went ex-dividend on May 1 – I established mirrored positions in the Rescue My IRA account and a conventional investment account I have at Scottrade.  At some point, I will be comfortable predicting whether a given position will be called, but so far it is just a random thing to me.  The shares continue to trade above my $13 strike, so they are looking good for assignment on May 18.

This means I will collect the 10 cents per share quarterly dividend, so the return calculations below are revised to reflect that improvement in the positions.  I was satisfied with the predicted results as it was - this extra $50 on each of the two positions is icing on the cake.

F- Rescue My IRA Position

Bought 500 shares at average share price $12.94, total $6,472.00
Sold 5 F $13.00 May 2013 for a total of $131.74

Net Profit:

1) Options Income:  = $131.74
2) Dividend Income: Ex-date was 5/1, $50.00
3) Capital Appreciation if assigned at $13:  $10.89

Total Net Profit if Assigned and dividend collected:  $192.63
Absolute Return on Investment: ($192.63/$6,472.00) = 2.98%
Annualized Return if Assigned (30 days):  2.98*(365/30) = 36.21%

F- Conventional Position

Bought 500 shares at average share price $12.94, total $6,472.00
Sold 5 F $13.00 May 2013 for a total of $141.74 ($10 more than I recd in Rescue My IRA)

Net Profit:

1) Options Income:  = $141.74
2) Dividend Income: Ex-date was 5/1, $50.00
3) Capital Appreciation if assigned at $13:  $10.89

Total Net Profit if Assigned and dividend collected:  $202.63
Absolute Return on Investment: ($202.63/$6,472.00) = 3.13%
Annualized Return if Assigned (30 days):  3.13*(365/30) = 38.09%

Monthly Results: April 2013

During April, we’ve continued the recent trend of finding new highs in the markets.  There was a period of more or less sideways trading during the middle of the month – that might have gone either way according to what I’m reading, for either a correction of consolidation in preparation for a new upward trend.  It turned out for the latter.

As I wrote at the end of March, it’s reasonable to question whether this is sustainable; I believe we are in a bull market that will last until the next recession, at least.  However, it is typical to see retrenching and consolidation, and even corrections in the near term.  That’s going to make for a good test of the Rescue My IRA strategy and I’m looking forward to it.

There are still a few trading days left in April, but I’m feeling like I probably have done everything that I am going to do this month, and I will go ahead an report my monthly results a few days early.  Rescue My IRA had good revenue from all three sources:  covered call premiums, dividends, and stock gains – and all proceeds are reinvested, as usual for this account. 

A couple of the trading highlights included my selection of TLT as the first ETF covered call in the account, and the assignment of the second lot of ITW. 

I chose TLT, a US Treasuries Index ETF, as my first ETF position, in part because I felt that it would reduce some risk to what is actually going to be a learning experience for me.  This ETF pays a monthly dividend and does not have a lot of price variation, so my plan is simply to roll-out the current call I have in place until the ETF is called away.  I may also add another 100 shares with any proceeds from the May expiration.

On the ITW trade, having those shares assigned this month closed out a 200 share position I held for just about a year.  It was a hat trick and between the call premiums, dividends, and stock gains, I earned about $1,600 on the original basis of $11,274.00.  With half of the position assigned on the December ex-dividend date, I probably did a little better than the absolute yield of 14.14% I calculated – but that meets my goal and I will leave it at that.

In April, Rescue My IRA collected $212 in dividends on three positions.  This is the slow month in the quarterly cycle, so this is a good amount of yield for the account.

Interestingly, I only made seven options trades in April, counting the three new positions I established.  That is the same number that I had in March…I wonder if that is a trend.  I netted $1,034.93 in premiums, just about the same as in March, so for two months running I have hit my benchmark of $1,000 in monthly premiums. 

Here is a summary of the Rescue My IRA statistics for April 2013, as of the 4/26/2013 market close:

Account Status:

·         Total Account Value, 4/26/2013 Market Close:  $142,267.90 (vs. March close of $139,988.24)

·         Total Cash Reserve, 4/26/2013 Market Close:  $8,086.90

·         Core Stock Positions (as of 4/26/2013):   AFL (200 shares), CAT (100 shares), CMI (100 shares), CSCO (500 shares), CSX (500 shares), DOW (300 shares), F (500 shares), GE (500 shares), GLW (700 shares), JPM (300 shares), MSFT (400 shares), SPLS (700 shares), TLT (100 shares)

Performance Metrics:
Option Premiums Collected (net, month of April):  $1,034.93
Capital Gains Collected (net, month of April): $965.67

Dividends Collected (recognized on the ex-date): $212.00
Interest on Cash Reserve (estimated): $0.08
Total, Absolute Return:  $2,212.68
Absolute Return, Percentage Basis:  1.67%
Annualized Return, Percentage Basis:  20.26%

Next Month To-dos:

May is a generous month for dividends, with $425.00 forecast from seven positions:  F, TLT, AFL, CMI, CSX, GLW, and MSFT.  At the time of this writing, F, CSX and GLW are in the money, and it is very likely I will see an early call on the F position on April 30.  For reporting purposes, I will include that in the May results if it happens; CSX and GLW go ex-dividend after the May contracts, so if they are assigned it will be on expiration date (and my dividend haul will be reduced by $133.00).

May is going to be an exciting month for call expirations – I have seven positions with May contracts:  CMI, CSCO, CSX, DOW, F, GLW, and TLT.  As I mentioned above, CSX, F, and GLW are currently in the money, so are DOW and GE.  For TLT, it is trading within $1.00 of my strike price so I could see that one called away, but CMI is well out of the money just now and I will probably look at a roll-out there.

I’m hesitant to say what I will do with those proceeds if everything comes out the way it looks right now.  I have half a mind to add 100 shares to the TLT position – assuming it is not called away, otherwise, I might re-establish it as a 200-share position – and then just sit on cash for the balance of the summer and look for bargains, should we see sideways trading for a consolidation or a correction. 

We’ll just have to see how it plays out.  I am happy with the April results and hope that May is even better.

Ciao for now!