Spring Flowers at Hawksbill Cabin

Spring Flowers at Hawksbill Cabin
Spring Flowers at Hawksbill Cabin

Monday, January 4, 2016

Rescue My IRA: December 2015 Results

Rescue My IRA ended the month very near the starting point for 2015 – so we had a sideways year.  The noncommittal year was often a theme of these monthly posts – I will take some time over the next few days to have a look back at the year and do an annual summary post. 

Between dividends, stock gains/losses, and covered call premiums, we were able to generate cash returns of more than $1,700, or 1%, during the month, which was right on the goal.  That these returns don’t automatically translate into the account being more valuable is one of the complexities of investing that I don’t work too hard to understand – I just take comfort in knowing that I held my own. 

Dividends were key to the December results – the month started with a forecast of seven positions going ex- during the month, including GE, which was called away.  The total return from dividends was $450 for the month, or about 0.27% on the account basis. 

Notable options transactions during the month included unwinding USO for a stock loss of $809, and having my GE and MSFT positions called away for offsetting gains of $113 and $587 respectively, providing a net of -$104.

With a new year beginning and election news preparing to dominate mindshare even more than it has in the last six months, I don’t hold out much hope for a strongly positive market during 2016.  I remember the terrible market of 2000 as my point of reference, when Bill Clinton was incumbent and could not be re-elected – the response anticipating George Bush was horrendous.  While the market hasn’t yet thrown in the towel as it did back then, there are rough roads ahead, enough to lead me to think we’ll be sideways for a while until it begins to look like there is a clear front runner between the two sides. 

Hopefully that’s when we’ll see a growth phase return.  I’ll continue to build cash reserves to the 30% level through the election.  Meanwhile, here is a summary of benchmark results for December 2015 – as always, these amounts are net of commissions and fees. 

Account Status:
·        Total Account Value, 12/31/2015 Market Close:  $167,609.77, which is down from the November close of $170,104.40; it’s also down slightly from the account’s 2015 starting point of $167,659.68.
·        Total Cash Reserve, 12/31/2015 Market Close:  $40,173.77, or about 24%; that’s up from the November balance of $33,272.30. 
·        Core Stock Positions (as of 12/31/2015):  AAPL (100 shares), CMI (100 shares), CSCO (500 shares), DIS (100 shares), DOW (200 shares), FB (100 shares), GM (200 shares), IP (200 shares), JPM (100 shares), NUE (200 shares), QCOM (100 shares), SBUX (200 shares), SPY (100 shares), XRX (500 shares)

Performance Metrics:
·        Option Premiums Collected (net, month of December):  $1,417.22 (0.85%)
·        Capital Gains Collected (net, month of December):  -$104.120 (-0.06%)
·        Dividends Collected (recognized on the ex-date): $450.00 (0.27%)
·        Interest on Cash Reserve: $0.29
·        Total, Absolute Return:  $1,763.39 (1.05% absolute return, estimated annualized return 12.62%) 

Next Month To-dos:

While December was a great month for dividends, January is relatively quiet:  there are only two positions with ex-dividends this month.  In fact, the ex-dividend date for the two stocks, CSCO and JPM, is January 4, which are out of the money at the time of this writing.  It looks like I can count on that $149.00 return in dividends, which represents about 0.09% on the account’s 2016 beginning value of $167,659.68.

This month there are five covered call contracts set to expire.  Of the five – DIS, FB, JPM, NUE, and XRX – only FB is in the money at the strike price of $100, which will generate a $138.00 stock gain on this position.  Both NUE and XRX would show losses at the current strike, so I will plan to roll them out when I have the opportunity.  If the remaining contracts are called away, the account will generate $307.00 in stock gains, about 0.18% return; it’s more likely that only FB will be called away for a gain of $138.00, or a 0.08% return.

That means that I can plan for at least four roll-outs during the month ahead, with call premiums needing to make up the difference between my monthly goal of a 1% cash return and the forecast returns from dividends and stock gains, which ranges from 0.17% to 0.27%.  So those transactions will keep the month interesting.   


That’s it for the December update.  I’ll put together a year-end summary for 2015 in the next week or so.  Otherwise, until the January results post, happy trading!

Tuesday, December 8, 2015

Rescue My IRA: November 2015 Results

During November, Rescue My IRA experienced a sideways month, even though the account value continued to recover from this summer’s correction.  The value closed above $170K for the first time since May, when it was above $174K – that’s great progress, since at one point the statement value was less than $160K.  At this level, the paper losses have been made up, but I am still working on some pruning in the account holdings – an activity that I hope will position the account for future growth.

Notable transactions included taking profits on LXK, which I had set up as a wash sale for a DDD position.  The was another corporate “financial engineering” position to deal with in HPQ – I’m just about convinced that merger plays should be avoided in this account, since most of my experience as a small time investor has been negative on these activities, and the loss on that position accounts for the negative capital gains shown in the update below.

Hopefully we’ll see a growth phase return to the market for a few months here.  I’ll continue to build cash reserves to the 30-40% level through the election, as I expect instability from that source and from whatever is ahead with the fed.  Meanwhile, here is a summary of benchmark results for November 2015 – as always, these amounts are net of commissions and fees. 

Account Status:
·        Total Account Value, 11/30/2015 Market Close:  $170,104.40 – continuing to recover from the correction, above the account’s 2015 starting point of $167,659.68, and October’s close of $168,803.81.
·        Total Cash Reserve, 11/30/2015 Market Close:  $33,272.30 – just less than 20%
·        Core Stock Positions (as of 11/30/2015):  AAPL (100 shares), CSCO (500 shares), DIS (100 shares), DOW (200 shares), FB (100 shares), GE (500 shares), GM (200 shares), JPM (100 shares), MSFT (200 shares), NUE (200 shares), SPY (100 shares), SBUX (200 shares), XRX (500 shares)

Performance Metrics:
·        Option Premiums Collected (net, month of November):  $312.71 (0.19 %)
·        Capital Gains Collected (net, month of November):  -$1,975.40 (-1.18 %)
·        Dividends Collected (recognized on the ex-date): $124.00 (0.07%)
·        Estimated Interest on Cash Reserve: $0.20
·        Total, Absolute Return:  -$1,538.49 (-0.95% absolute return, annualized return not estimated) 

Next Month To-dos:

December is a great month for dividends, with $494.00 forecast on six account holdings.  Two of these positions have December in the money calls written against them, so the dividend haul could be reduced to $307.00.  There will be offsetting capital gains if they are called away. 

At the beginning of the month, there were seven covered call contracts set to expire.  I have already rolled three of them out, either as part of a position repair strategy or because the call premium was below $0.20, but four remain.  All are in the money, and I am forecasting gains totaling $770.23 on these shares. 

Month to date, Rescue My IRA has generated $264.23 in covered call premiums, mostly from the roll-outs I mentioned above.  Based on these estimated returns, the account has already generated most of the 1% monthly return I seek on cash flow measures.  We’ll see how things go as the month progresses – some year-end adjustments to the holdings may still make some sense.


That’s it for the November update.  Until next month, happy trading!

Sunday, November 8, 2015

Rescue My IRA: October 2015 Results

A combination of activities has kept me away from posting regularly over the last few months, but I have kept up my trading activities in Rescue My IRA.  I’ll see if I can do better going forward, but in the meantime, here are my monthly results for October 2015.

The market’s big news of late was the correction that began in July and now seems to be behind us.  At one point, Rescue My IRA had a statement value of less than $160K, which meant for a time all the growth in the account since 2014 was eliminated in the correction.  By October 31, the account was approaching $170K, so those paper losses had been made up and we are in the black for 2015.

On the account maintenance front, I did take some measures to protect capital and trim up some of the positions in the portfolio.  I had been working towards growing the cash reserve starting in July, but the correction moved too fast for me to fully meet my goal of getting 40-50% into cash; I made it to 25%, which was more than I have held in cash for 18 months or so.  I’m also holding steady at 12 positions in play, at the low end of my typical range of from 12 to 16. 

Notable transactions during October included doing a wash sale (see the post here) on my DDD position, trading it into competitor LXK.  Also, I unwound and sold the EMC position – the company was purchased by Dell, but the market didn’t like the terms and the EMC shares were declining prior to the merger close, so I decided to put those resources back into cash instead of waiting for resolution.

All in all, an interesting month, one of several during this correction.  For the most part I kept the faith with my shares, only making changes in certain circumstances such as DDD and EMC.  I ended up with trading losses for October, but despite that, the recovery brings the account into positive territory for the year, and we’ll see how we do in the remaining two months.

Here is a summary of benchmark results for October 2015 – as always, these amounts are net of commissions and fees.  I will resume comparing monthly results with the November post.

Account Status:
·         Total Account Value, 10/31/2015 Market Close:  $169,015.51 – recovering from the correction, and once again above the account’s 2015 starting point of $167,659.68.
·         Total Cash Reserve, 10/31/2015 Market Close:  $40,283.41 – just less than 25%, currently evaluating an appropriate level given the market recovery.
·         Core Stock Positions (as of 10/31/2015):  AAPL (100 shares), CSCO (500 shares), DIS (100 shares), DOW (200 shares), FB (100 shares), GE (500 shares), HPQ (400 shares), LXK (200 shares), MSFT (200 shares), NUE (200 shares), SPY (100 shares), XRX (500 shares)

Performance Metrics:
·         Option Premiums Collected (net, month of October):  $621.20 (0.37 %)
·         Capital Gains Collected (net, month of October):  -$5,141.15 (-3.17 %)
·         Dividends Collected (recognized on the ex-date): $105.00 (0.06 %)
·         Estimated Interest on Cash Reserve: $0.28
·         Total, Absolute Return:  -$4,414.67 (-2.63% absolute return, annualized return not estimated) 

Next Month To-dos:

November is a poor month for dividends, but not as bad as October.  AAPL, LXK, and MSFT have ex-dividend dates, and I expect to collect $196.00, or 0.12% return, if the shares are not called away.  At the time of this writing LXK has a November contract in-the-money, so there is a chance it will be called, reducing the dividend returns by $72. 

The forecast of covered call contracts set to expire this month include an FB and LXK.  I have already rolled the FB position out and up, from a $97.50 strike to a $100 strike, and from a November contract to a January covered call.  LXK was the wash sale trade from DDD – I’m inclined to let these shares be called away, and even if the dividend is taken from me that trade will earn $338, or 5.37% over the one month duration – it’s a small piece of the DDD loss, but quite satisfactory as a trade.

I don’t expect a lot of trading activity for the balance of the month, since there is only one November contract left.  December promises to be busier, as I have seven contract set to expire then.  There is the matter of determining where I’d like to be on cash reserves, so I may choose one or two new positions during November, but I’m not ready to pull the trigger on that yet.


That’s it for the October update.  Until next month, happy trading!

Monday, October 19, 2015

Wash Sale: LXK for DDD

They have that saying about trying to put lipstick on a pig – it really hits home these days, after the market correction we’ve experienced during August and September.  I had resolved that we would stick with the covered call strategy in Rescue My IRA and manage the holdings with roll-outs, roll-ups, and roll-downs – with a deliberate effort to not take losses on the positions until things settled down.

This approach was in synch with the overall market.  At one point during the correction more than 20 of the Dow 30 stocks showed a negative return for the year, which I interpreted to mean that everybody was feeling the pain.  That further reassured me that I should hang tight.

Fast forward a few weeks, and now in mid-October better than half of the correction has been recovered.  The list of Dow 30 stocks down for the year was back in the low teens, where it was before the correction.  I took the recovery as an opportunity to do some weeding Rescue My IRA, focused on my DDD position, established with a 500 share purchase in July 2015.

This position tanked, and while I had managed to offset some of the depreciation with roll-outs and roll-downs (the initial strikes were at $22 and the final ones were at $17), but the stock continued to fall to $13, and it didn’t seem to have good prospects to get back to the strike price over the next 12 months, so I sought out a wash sale opportunity.  I decided to unwind DDD and move the proceeds into a new LXK position.

Before I mention the results of the DDD trade, I want to make a note about the portfolio approach I use in Rescue My IRA.  I try to maintain from 12 to 16 holdings in the account, along with a cash reserve that varies in size.  This diversification allows for risk management – I expect a loss or two every year, balanced by 2 or 3 really good gains, with an overall goal of an average return ranging from 10% to 12% per year.

So the DDD position counts as the big loss of the year – I took a hit of around 30% on the original investment, net of commissions, fees, and covered call premiums.  I immediately rolled those proceeds to LXK, as I mentioned above, with a position that is summarized below – forcasting a 30-day gain of around 5%, which will begin to earn back the DDD loss.

Here is the position plan for LXK, net of fees and commissions; this position was established as a wash sale for the poorly performing DDD contract.

LXK

This is a 200-share position established in October, with a basis of $6,285.00, or $31.43 per share.  The current covered call is $32 Nov 2015; the position is a wash sale on a DDD trade that went south.   

Total covered call premiums:  $240.50
Total dividend payments (no dividends):  $0.00
Total stock gain at $32:  $97.00
Total, absolute gain on the position:  $337.50
Total, absolute return percentage ($337.50/$6,285.00):  5.37%


Annualized total return percentage (approx 40 days if held to expiration):  49.00%

Sunday, October 18, 2015

New Position: DIS

In July I had begun to consider whether I should up the cash reserves in Rescue My IRA to around 30% of the account value.  An adjustment of this sort seemed justified since we are in the last year of the current administration; the market’s track record suggests that if you’ve had a good run as we have these last few years the seventh or eighth year of a presidency isn’t going to go as well.  I figured I had until October to act on this decision, but that’s not how I worked out – at the present I have about 15% in reserves.

One reason the strategy wasn’t fully implemented was my decision to add a position with 100 shares of DIS – which I started in August 2015 with a $110 October covered call.  Since until this year DIS was an annual dividend paying stock, I have often gone to the stock for an end-of-year play on a potential dividend run, targeting December contracts.  While I started with the October contract I have now rolled out the position to December.

Despite the correction that subsequently happened through August and September, the DIS position is holding its own.  Assuming the shares are assigned before the ex-dividend date (the stock now pays dividends twice a year, July 1 and January 1), the absolute yield will be about 5%, which equates to an annualized yield of 15%, based on a four-month holding period.    

Since I did not post on the new trade when it was initiated, here is a recap of the position plan, net of commissions and fees.  My next post will be an example of a trade that did not do as well. 

DIS

Transactions

Bought 100 shares at average share price $108.72 (total $10,872.00)
Sold 1 $110 Oct 2015 covered call, subsequently rolled out to Dec 2015

Net Profit:

1) Options Income:  = $440.25
2) Dividend Income (Jan ex-dividend is after the contract period): $0.00
3) Capital Appreciation if assigned at $110.00:  $110.00


Total Net Profit if assigned on the contract expiration date:  $550.25
Absolute Return on Investment: ($550.25/$10,872.00) = 5.06%
Annualized Return if Assigned and Dividend Collected (120 days): 5.06%*(365/120) = 15.39%

Saturday, October 10, 2015

The Hiatus and The Correction

I’ve been away from the blog since the beginning of August…over these last two months I’ve been watching the market as carefully as ever, and I have been working on Rescue My IRA.  I simply haven’t posted due to a couple of distractions, such as the hops harvest at my farm (link here), and the ribbon cutting on the building we just delivered at my day job.  I’ll try to catch up with a couple of posts this week and then make a goal of staying up-to-date after that.

The big news in the market, of course, is the correction that began in August.  Although there have been minor downward swings since I opened this account in 2011, this was the first to really test the covered call strategy I use here in Rescue My IRA.  More volatility is forecast, but now that the markets have recovered about half of the correction, it’s a good time to assess the situation.

I read the Washington Post every weekday morning.  While their business section isn’t much, there is a little table of Dow 30 performance.  At the depths of the correction during the last week of September, fully 24 of the 30 stocks showed a negative return from the year – I figured that meant everyone, even the big guys, were showing losses…all the more reason to keep the faith.

My resolution was not to sell my shares at a loss during the correction.  I determined that continuing to hold the companies I had chosen and staying true with the covered call strategy was the best path forward.  I bought and resold options throughout this period – “buy low, sell high” – using roll-downs and roll-outs as the way to keep the account updated.

I had hoped to increase my cash reserves to around 30% by October, but the correction got in the way.  Instead, cash is around 15% of the account – I’ll continue to work on getting this number to my 30% benchmark, since a presidential election year can be highly variable and I think I could use the correction.

Yesterday, when I checked the Dow 30, the number of stocks showing a negative return had improved to 18 or so, and it is likely that after the good day Friday, a couple more are back in positive territory. 

That’s the story with Rescue My IRA as well – at the end of September, we were showing a hit of around 10%.  After the strong week we had, the account is back to its starting value for 2015 – right at breakeven.  Once again I have covered calls written against every position, and it looks like I will make my cash flow goals for October.


I follow this post with a summary of some of the roll-outs and roll-downs I executed over the last two months.  Let’s get caught up!

Sunday, August 2, 2015

Rescue My IRA August 2015 Results

During July, the market continued the summer doldrums, moving downwards, and as a result, the statement value of Rescue My IRA has dipped below where it started for the year.  The ending balance, is less than 1% down from the January 1 balance, that’s not where I’d like to see it, but that’s the market we have, not the one we want, Donald Rumsfield!

I took advantage of these movements and bought to close and then sold to open some of my covered calls, trading them as securities in their own right, if you will.  This strategy brought in almost $1,300 in premiums to the account this month – a result that did help pacify any worries I might have about where the market is headed next.

The situation means I’ll be keeping a careful eye on my core positions and the profitability of the covered calls I’ve written. With many of them out of the money and in back month contracts, the temptation is always there to do a buy to close and roll down – the portfolio can handle this type of activity and still be profitable overall, but it’s not my preferred approach, and it takes a lot of work.  It’s probably better to stay in a hands-off mode until the summer is over.

Finally, here is a summary of benchmark results for July 2015 – as always, these amounts are net of commissions and fees.

Account Status:
·         Total Account Value, 7/31/2015 Market Close:  $166,516.56 – that’s down from the June ending balance of $169,438.04, and down from the account’s 2015 starting point of $167,659.68.
·         Total Cash Reserve, 7/31/2015 Market Close:  $30,090.56 – just less than 20%, and I am still looking to move up to 50% by October.
·         Core Stock Positions (as of 7/31/2015):  AAPL (100 shares), CSCO (400 shares), DDD (500 shares), DOW (200 shares), EMC (400 shares), FB (100 shares), GE (500 shares), HPQ (400 shares), MSFT (200 shares), NUE (200 shares), SPY (100 shares), TXN (200 shares), XRX (500 shares)

Performance Metrics:
·         Option Premiums Collected (net, month of July):  $1,296.46 (0.77 %)
·         Capital Gains Collected (net, month of July):  -$339.25 (-0.20 %)
·         Dividends Collected (recognized on the ex-date): $152.00 (0.09 %)
·         Estimated Interest on Cash Reserve: $0.20
·         Total, Absolute Return:  $1,109.41 (0.66 % absolute return, annualized return is estimated at 7.94%) 

Next Month To-dos:

August is no better for dividends than July was, with only two ex-dividend dates forecast:  AAPL and MSFT, for a total of $114.00, or a 0.07% return on the portfolio.  September will be better, but this forecast leaves a lot of work to be done in August to make my goal of an overall return of 1% monthly. 

The forecast of covered call contracts set to expire this month include an August 28 FB strike of $95 and an August 21 MSFT strike of $46.50.  As of this writing, MSFT is in the money, and FB is just out of the money; because I set these contracts up with in the money contracts I’ll take a small capital loss on both of them if I let them get called away, which I am inclined to do, as I am still trying to grow the cash reserve through October.

On a further point of clarification:  the MSFT position is set up to yield an absolute of 3.33% over the 30 day holding period, even with the stock loss.  With the ex-dividend date of August 18, even if the August contract is called early and I lose the dividend, the position will have earned an absolute return of nearly 3%, so I’m good with that.

Similarly, on the FB position, the position was set up in the money to yield just about 3% over the course of the 35 day holding period.  The position is about $1 out of the money as of this writing, but there’s enough volatility that I have no worries – and the benefit of this approach is that I will simply roll-out if the call is not assigned.


That’s it for the July update.  I hope everyone is enjoying their summer, despite the market.  Until next month, happy trading!