Spring Flowers at Hawksbill Cabin

Spring Flowers at Hawksbill Cabin
Spring Flowers at Hawksbill Cabin

Sunday, May 17, 2015

A Wash Trade - VLO for COP

The value of Rescue My IRA has crossed the $170K threshold and appears to be holding on at that level, so I turned my thoughts to doing some pruning in the covered call positions for the last few weeks.  I looked for candidates with long holding periods and significantly out of the money covered calls where I could do a “wash sale” – taking a loss on one stock and buying a replacement in the same industry – which is an approach you might use in a conventional account to manage capital gains taxes. 

Rescue My IRA is not taxed, but the approach is still a sound one.  Since the covered call portfolio is set up to operate with between 12 and 16 positions going at any given time, it’s expected that there will be one or two losing positions a year – those are offset by one or two big winners – while most of the rest perform according to plan, steadily generating a better than market return.

I settled on reworking the COP position after doing a screen for other petroleum related shares that offered the potential for replacing it.  I quickly found VLO as an opportunity, and pulled the trigger on this trade.  While I ended up taking a four-digit loss on COP, I was able to set up a VLO trade that would recover a third of that in 30 days; and since the account has stabilized around a new high I was able to absorb the loss within the portfolio without affecting performance for the year.

Here’s a final analysis on the COP position, along with the position plan for the VLO shares – as always, these figures are net of commissions and fees.

COP

Shares:
Bought 100 shares in September 2014 at a basis of $8,050.99, or $80.51 per share. 
Sold the shares netting $6,531.87, for a loss on share value of around $1,500.00.

Options:
Total options income:   $364.95 – I started with the $80 strikes, but had rolled down to $72.50, and even with this approach it didn’t appear the stock would rise to a callable level anytime soon.

Dividend:
Total dividends collected:  $146.00

Net Profit:
Total Net Profit after Unwinding:  -$1,008.17
Absolute Return on Investment: (-$1,008.17/$8,050.99) = -12.52%
Annualized Return (240 days):  -12.52%*(365/240) = -19.04%

VLO

Shares:
Bought 100 shares in May 2015 at a basis of $5,765.00, or $57.65 per share. 

Options:
Total options income:   $102.75 – I sold a June $60 option on these shares.

Dividend:
Total dividends expected:  $0.00 – there’s no ex-dividend date during the holding period.


Net Profit:
Total Planned Net Profit at $60.00:  $217.00
Absolute Return on Investment: ($319.75/$5,765.00) = 5.55%
Annualized Return (30 days):  5.55%*(365/40) = 37.48%

Wednesday, May 13, 2015

Unwinding FCX

When I picked FCX for a trade last month, I knew I was choosing a stock with a lot of volatility, as well as one that gets a lot of talk in various forums.  These facts define shares that I would normally not deal with in Rescue My IRA, but I did have the capital at the time and the potential profit on the trade seemed to offset the risks of a short-term position, so I bought 500 shares and sold covered calls against them.  I was able to unwind the position for a good profit in early May, after a six week holding period. 

Here is the final analysis of the FCX trade, net of commissions and fees:

FCX

Shares:
Bought 500 shares in March 2015.  The total basis was $9,467.00 with an average share price of $18.93.
I unwound the position in early May at an average price of $23.84, for a total gain of $2,450.74

Options:
Total options income:   -$1,527.92 – as is often the case on unwind trades, I traded option premiums for stock gains.

Dividend:
Total dividends collected:  $25.00


Net Profit:
Total Net Profit after Unwinding:  $947.82
Absolute Return on Investment: ($947.82/$9,467.00) = 10.01%
Annualized Return (45 days):  10.01%*(365/40) = 81.21%

Two New Positions: CSCO and DOW

So far in May, I’ve opened two new Rescue My IRA positions, one each in CSCO and DOW.  I’ll catch up those posts today with an assessment of the position plans. 

I placed the DOW trade first, early last week.  The source of funds was the proceeds of the FCN trade, which I had unwound for a profit – I guess that is another post I should catch up on this week! 

The CSCO trade was one I decided to place after thinking a little bit about the market:  I think it has legs until October or so, once election activities get hot and heavy and we collectively start thinking about what the change will mean.  Until then, I wanted to get more of my cash reserves into stock, so with the CSCO trade I have the ratio down to around 12 percent.

Here are the position plans for CSCO and DOW, net of commissions and fees. 

CSCO

CSCO is one of a half dozen or so stocks I have traded multiple times in Rescue My IRA.  I bet there has been at least one per year and probably two per year a couple of times.  It’s such a well-recognized brand name that I have no reservations choosing it, as long as it meets my other selection criteria.

Transactions

Bought 300 shares in two transactions at average share price $29.14 (total basis $8,741.99)
Sold 3 $30 June 2015 covered calls

Net Profit:

1) Options Income:  = $141.25
2) Dividend Income (no dividend forecast during contract): $0.00
3) Capital Appreciation if assigned at $30.00:  $240.01

Total Net Profit if assigned in June:  $381.26
Absolute Return on Investment: ($381.26/$8,741.99) = 4.36%
Annualized Return if Assigned and Dividend Collected (40 days):  4.36%*(365/40) = 39.80%


DOW

I traded DOW earlier this year.  When I ran my screen to reinvest the proceeds from FCN, it was the only stock I did not currently hold in Rescue My IRA.  So there you go.

Transactions

Bought 200 shares at average share price $51.92 (total basis $10,383.00)
Sold 2 $52.50 June 2015 covered calls

Net Profit:

1) Options Income:  = $205.50
2) Dividend Income (no dividend forecast during contract): $0.00
3) Capital Appreciation if assigned at $52.50:  $99.00


Total Net Profit if assigned in June:  $304.50
Absolute Return on Investment: ($304.50/$10,383.00) = 2.93%
Annualized Return if Assigned and Dividend Collected (45 days):  2.93%*(365/45) = 23.79%

Tuesday, May 5, 2015

Rescue My IRA: April 2015 Results

Here’s the monthly report for Rescue My IRA: while we’ve had some decent market volatility this account is up by nearly 3% for the year.  My side venture of Hawksbill Hop Yards is still keeping me busy (you can read about the farm here:    

My strategy of reducing cash reserves to between 15-20% of the account value seems to be working out, although I have to admit I picked a few stocks I am not entirely happy with – I compromised my selection criteria on one or two of them so I will be riding these out.  However, there are 14 positions in the portfolio as of April 30, so the risk from those few is spread out over some higher quality positions.

In April, the bulk of the returns - $1,860 – was produced from stock gains as four positions were either called away or unwound:  FB, HAL, JPM, and SPY.  Covered call premiums were at about breakeven, mainly due to the position unwinds that generated the offsetting gains above, and it was a good month for collecting dividends – Rescue My IRA earned just over $400 through this category of income. 

Here is a summary of benchmark results for April 2015- as always, these amounts are net of commissions and fees.

Account Status:
·         Total Account Value, 4/30/2015 Market Close:  $172,428.51 – up from the March ending balance of $169,187.41.
·         Total Cash Reserve, 4/30/2015 Market Close:  $26,314.51 – still tracking in the 15-20% range.
·         Core Stock Positions (as of 4/30/2015):  ABBV (100 shares), AAPL (100 shares), CA (300 shares), COP (100 shares), EMC (400 shares), F (500 shares), FCX (500 shares), GE (400 shares), NUE (200 shares), PPL (300 shares), QCOM (100 shares), SPY (100 shares), T (400 shares), TXN (200 shares)

Performance Metrics:
·         Option Premiums Collected (net, month of April):  -$109.14 (-0.07%)
·         Capital Gains Collected (net, month of April):  $1,859.97 (1.11 %)
·         Dividends Collected (recognized on the ex-date): $407.00 (0.24 %)
·         Estimated Interest on Cash Reserve: $0.30
·         Total, Absolute Return:  $2,158.13 (1.29% absolute return, annualized return
15.45%) 

Next Month To-dos:

Rescue My IRA begins the month of May with four covered call positions set to expire in May:  AAPL, EMC, FCX, and TXN.  It looks like I am pretty far underwater on EMC and TXN, so I’ll take early action to roll these two out, although I may have to go pretty far into back months for this – possibly July, or worse, October.  We’ll see what we can work out on those, meanwhile, the gains on FCX and AAPL should hold us over.   

The dividend forecast is not as good as April but still not bad:  there are four positions going ex-dividend this month, yielding $315.00.  One of these, AAPL, is in the money with a May expiration, so it’s not likely I’ll be holding this one on the ex-date, reducing the dividend haul to $263.00.

Assuming I can roll out EMC and TXN, the account will have a good month during May, otherwise it will be a breakeven month.  The market seems to be holding forth with steady gains, so I’m content to watch and wait, although I will do a better job of staying true to my stock picking criteria. 


So that’s it for April results.  Until next month, happy trading!

Tuesday, April 7, 2015

New Position: SPY

Once the JPM position was called away on the ex-date, April 1, I put most of the proceeds into a new position with SPY, the S&P 500 ETF.  The per share cost of this trade is fairly high – it’s the one security with highest share value I have ever bought in Rescue My IRA, although this is not my first rodeo with SPY. 

My approach this time was to look for a trade with only two weeks of time involved, and also to sell an in-the-money covered call to basically write a contract for a set gain.  In this case, I’ll have about $15.00 in a capital loss, but that is offset by a call premium of just over $160.00.  The net of about $145 over the course of the nine day holding period sets this trade up for an absolute return of .70%, which annualizes to 29%. 

This is the third trade in a series that started with a profitable DIS trade earlier this year, followed by the JPM trade that was called away.  I sure hope I can keep the string going!

Here is the position plans for the SPY position, with results reported net of commissions and fees:

SPY

Transactions

Bought 100 shares at average share price $205.97 (total $20,597.00)
Sold 1 $206 April 10 2015 covered call for $163.75

Net Profit:

1) Options Income:  = $163.75
2) Dividend Income (no dividends this holding period): $0.00
3) Capital Appreciation/Loss if assigned at $206.00:  -$15.00


Total Net Profit if assigned on April 10:  $148.75
Absolute Return on Investment: ($148.75/$20,597.00) = 0.72%
Annualized Return if Assigned and Dividend Collected (9 days):  0.72%*(365/9) = 29.29%

Monday, April 6, 2015

Rescue My IRA - March 2015 Results

Here's the hop yards' logo.  Twitter
handle is @hawksbillhops 
I’m writing my monthly Rescue My IRA results post about a week late this month, but I have an excellent excuse.  In January, I decided to take a step towards starting a small business in Luray, Virginia – Hawksbill Hop Yards – which you can read about here.  The business plan and attendant chores related to getting this project underway have been time consuming (but incredibly fun!).

After the break out we saw in February, I decided that I would put more Rescue My IRA cash to work on positions and covered calls.  I have been tracking cash reserves at around 20-25% for the last year or so, but I made the strategic call to reduce this to around 15% during March.  As a result, I now have 15 positions trading, and we’re back to seeing the bulk of the monthly returns generated in covered call premiums.

In fact, the $1,900 generated from covered calls met my goal of a 1% return for the month all by itself, although there were good dividend and stock gains results as well. 

My wife and my farming partner
David, checking out the field.
As I wrote last month, I don’t calculate the unrecorded gains and losses in this account as part of the monthly return, which is why the account value changes independently from the transaction results.  I figure that with a good trading plan, these things take care of themselves over the course of the life of each position, so the best success indicator ultimately is simply the increase in account value.  Even so, monitoring the three component items is a good way to track progress and improve decision making.

Well, that’s all I have to say for now – I need to get back to work on the hops farm. Here is a summary of results for March 2015- as always, these amounts are net of commissions and fees.



Account Status:
·         Total Account Value, 3/31/2015 Market Close:  $169,187.41 – down slightly from the February ending balance.
·         Total Cash Reserve, 3/31/2015 Market Close:  $32,364.23 – also down from February.
·         Core Stock Positions (as of 3/31/2015):  ABBV (100 shares), AAPL (100 shares), CA (300 shares), COP (100 shares), EMC (400 shares), F (500 shares), FB (100 shares), FCX (500 shares), GE (400 shares), HAL (200 shares), JPM (100 shares), NUE (200 shares), PPL (300 shares), QCOM (100 shares), T (400 shares)

Performance Metrics:
·         Option Premiums Collected (net, month of March):  $1,908.82 (1.14%)
·         Capital Gains Collected (net, month of March):  $346.02 (0.21 %)
·         Dividends Collected (recognized on the ex-date): $310.25 (0.19 %)
·         Estimated Interest on Cash Reserve: $0.30
·         Total, Absolute Return:  $2,565.39 (1.53% absolute return, annualized return
18.36%) 

Next Month To-dos:

As I’m writing this it is already the first week in April, so my forecast will reflect that I have already completed a couple of roll-outs, and I’ve added a 100 share position in SPY which will show a $15.00 loss when exercised on April 10.  JPM has already been called away on its April 1 ex-date, and there remain three positions with expirations in April, including SPY – the other two are FB and HAL. If all three are called away, there is the possibility of $650.30 in capital gains, or 0.39 % return. 

April’s dividend forecast is not bad, with four stocks going ex-dividend:  ABBV, F, FCX, and T.  JPM has already been called away, so there is a total estimated yield of $339.00, or 0.20%.  None of them have April contracts on them, so the estimate is pretty solid at this point. 

That puts estimated cash returns from stock gains and dividends at around $1,000.00, or 0.59% - I need another $700.00 or so from covered call premiums to make my goal of a 1% return for the month.  As of this writing, I have generated almost $600.00, so we are just about to the finish line.  With three ITM calls coming up this month, I should have the opportunity to sell a few more contracts, which will take the account across the finish line for April. 


When I write my April post, hops planting season will be starting us in the face.  I’ll try not to be late with the monthly post, despite that.  Until next month, happy trading!

Thursday, April 2, 2015

Called Away on the ex-date: JPM

I bought a couple hundred shares of JPM on the heels of my DIS trade last January.  It is a stock I've had a couple of good trades with over the course of the Rescue My IRA account, and this transaction adds to the track record.  

I held the shares a total of 75 days before they were called away on the April 1 ex-dividend date yesterday - and the trade earned an absolute return of 5.51% on the cash invested.  That works out to an annualized return of almost 27%, well above my goal of a 12% annualized return.

(For the original January post on this position, see this link.)

Meanwhile, here is the final analysis of the JPM trade, net of commissions and fees:

JPM

Shares:
Bought 200 shares in January 2015, with a total basis of $11,223.00 and an average share price of $56.12.
The position was called away on the ex-dividend date at a $57.50 strike price, netting $11,482.77, for a total stock gain of $259.77.

Options:
Total options income:   $358.49 – I only sold one covered call on this trade, the April $57.50.

Dividend:
Total dividends collected:  $00.00 – the stock was called on the April ex-dividend date.


Net Profit:
Total Net Profit after Unwinding:  $618.26
Absolute Return on Investment: ($618.26/$11,223.00) = 5.51%
Annualized Return (75 days):  5.51%*(365/75) = 26.81%