Tuesday, October 25, 2011

A Third Trade: GLW and JAN 2012 15

A quick post on the third trade I have going on, involving 200 shares of GLW and the January 2015 15 call.

But first, a few notes about this blog:

  • I am still in a steep part of the learning curve, and my research is just beginning to touch on the nature of the risks that the covered call strategy involves. So over the next month or so, I'll probably write up some "Covered Calls 101" posts.
  • As a result of the research, I am finding that I have a generally bullish outlook on the markets.  My trades generally have been designed under the assumption that my contracts will be assigned with a capital gain.  As I learn more about the risks, I may revise how these are reported.
  • Some of the other covered call blogs post much less often than I have or probably will.  RescueMyIRA will fall into its own rhythm, no doubt, but since the options calendar has an inherent cycle, I expect my posts to loosely follow that...there'll be strategy posts, trade results, and monthly results that work around significant dates on the trading calendar.
  • Lastly, one of the bloggers has a trading philosophy and plan - I think that is a good idea, and I plan to develop one.  He has made 12 adjustments to that plan over the 5+ years he's been doing this...I would expect my experience to be similar.
Now for the GLW trade.

I bought 200 shares at $13.60 last week, then sold 2 JAN 2012 15 contracts at .60 each.  There's a dividend with a November ex-date of .075 per share. The calculation of anticipated return is:

Share price (200 shares plus commission):  $2,727
JAN 2012 15 calls (2) premium (net of commission and assignment fee):  $92.50
Dividend (if collected): $15.00
Capital Gain (if assigned):  $273

If I am assigned, the proceeds will range from $300 to $400, a return on the share price of 13.4% or better, mainly dependant on whether I collect the dividend.

If the calls are not assigned, the proceeds are around $125.50 (includes option premium net of commission and dividends), that is a yield of about 4.6% on the share price.  At January expiry I will revisit this scenario to determine next steps.

Onward and upward.

Monday, October 24, 2011

New contract: IP Nov 26 CC

While I am doing some overhead activities on the new plan for rescuing my IRA (I hope to develop a strategy, business plan, and metrics) ...I did go ahead and set up a new trade (I noticed that I posted on this trade earlier, but I've corrected some figures in today's post)...I may even be assigned on it shortly, as this morning the stock is trading above the strike price today...

The company is International Paper, symbol IP.

I bought 200 shares a couple of weeks ago after the COP trade was completed. The share price was $25.29, and my commission was $7.  A dividend of about .26 is planned with an ex-date of Nov 17, during expiration week for November option contracts.  I sold two November 26 covered calls.

My calculations on anticipated return, assuming this stock continues on it's upward trend and I am assigned, is as follows: 

Share price (for 200 shares, including commission):  $5,042.10
Nov 26 call premium (2 contracts, net of commission and assignment fee):  $179.00
Dividend, if collected:  $52.50
Capital Gain, if assigned:  $157.90

If I am assigned on the covered call, my proceeds will range from about $310 to $370, depending on whether I collect the dividend, giving me a return of between 6 and 8% on invested capital for the five weeks on this contract.

If I am not assigned, the proceeds are about $250 (includes the dividend and option premium, net of fees), for a return of 4.59% for the five weeks of this contract term.

One of my colleagues from the Yahoo Covered Calls community has given me an insight on his experience with shares in IP - his strategy is to sell cash secured puts, and he's doing pretty well with them.  That's a strategy I need to look into further, and will, once I've settled on my goals and strategy for the Scottrade account.

Friday, October 21, 2011

Finalizing the Transfer from Ameriprise

Yesterday, I received a letter from Ameriprise advising me that they had not been able to send my old account holdings over to Scottrade.  There were six ETFs in the account and the CUSIP numbers required reinvesting profits and dividends - and apparently these CUSIPs aren't acceptable ("holdable") at Scottrade, so they sent the shares back.

I could have had Scottrade sell them anyway, but that would have involved a broker fee of $50 each - $300 total.  That would have taken a little time and worry to make up, so I had them sent back over to Ameriprise and began trying to navigate how to dispose of them.

Finally, I get this letter, dated 10/13/2011, which says to call them and they will take care of it.  It also says that if I didn't do so within 30 days of the date of the letter, they'd reopen the old account with these shares "subject to applicable fees."

I got on the horn with them this morning.  A very pleasant rep named Jeffrey took my order and arranged for the sale, then called me back to confirm. The funds will settle on 10/24 and I can then roll them over to Scottrade.

The good news is the estimated proceeds from these ETFs are $42K or so.  I'm sure there will be fees.  But if the bulk of that is transferred, when combined with what already came over, it means my starting point is $48K - remember from the first post on this blog, my initial goal will be to rebuild the account to $77K as fast as I can. 

Only $29K to go!

Wednesday, October 19, 2011

Revisiting COP

The stock of my first trade with this account, COP, closed at $69.56 today, a week after I exited when my call option was assigned.  This is one of those situations I will need to get used to with the covered call strategy...if I had stayed long in the shares, I would be up around $500 and looking to collect the dividend on my shares.

As it is I am out of the stock, having taken a nice profit, and not subject to the volatility that might ensue from such a quick run up...

I think the point has to be that the previous transaction was a trade, making money the old fashioned way, buying low and selling higher.  At least, that is what I am going to tell myself with this new approach.

Thursday, October 13, 2011

Account Status, and Next Trade

I spoke with my Scottrade branch manager today, who called to tell me my COP option was assigned...I told him that I knew already, and that I was working on my next trade.  I'll discuss that in a minute, but first let's go to the status of the account transfer from Ameriprise over to Scottrade.

You'll recall from an earlier post that I had intended to close out my account over at Ameriprise in order to improve the account's practivity and get more control over the investments. There was some issue with the transfer, and several of the previous ETFs could not be held in the Scottrade account, so they had to be transferred back to Ameriprise, where they sit in limbo because my old broker cannot "see" my account on his screen. 

Frustrating. No likey. Part of why I moved the account.

Moving on to the next transaction.  I know I have a lot to learn about the covered call process, but I decided to set up a November trade.  I created a screen on Scottrade to get a few candidate stocks - looking for S&P Stars ratings of 4 or 5, and dividend yields in excess of 3%.  This is what I am working with now, I will probably improve this with payout ratios as I learn more.

Another example of what I want to beccome proficient on is the time value of the premiums.  That will come.

For the next trade I decided on IP - International Paper, which was trading around $25.30 per share today.  The stock pays a dividend of $26.25, goes ex- in November during options expiry week.  I bought 200.  Then I sold 2 contracts of the November 26, picking up $196 or so.

If I am assigned on this trade, I will net around $297 for the sale and the options contracts, that's around 5.8% for about a month on this trade. 

If I am not assigned, I will receive about $52.50 in dividends and look at whether I want to take profits or do another covered call.  I'll keep you posted.

COP Assigned - First Trade Complete

Logging into my Scottrade account today, I see that my COP option has been assigned well before the ex-dividend date for the shares.  The market has been rising lately, and it took these shares with it, obviously.

So here's a quick recap on how that covered call trade worked out for me:

Cost (net) of 100 shares of COP:  $6,315.91
Oct 65 call on COP premium (net): $87.74
Price (net) on assigned shares: $6,482.87

So I netted $254.70 off of the first trade with this strategy, which is close to the top of the range I had estimated, which was between $140-260.  That's 4% on the trade.  My money was locked in the stock for about 10 days.

The only downside, I didn't hold the stock through the ex-dividend date, so there's no residual revenue to be made off of this one.  But I didn't expect that to be the case; it's why I didn't include it in the estimate.

Looking for the next one.  Baby steps.  Comments welcome.

Wednesday, October 5, 2011

Money's in Transit, but First Transaction Anyhow

My transfer from the old Ameritrade account has hit a speed bump.  Some of their ETFs are not holdable in the new Scottrade account, so they were sent back and I have to do something to get the CUSIPs changed.  Honestly, I just want out of them at this point.

Meanwhile, three of the ETF holdings did transfer, and I disposed of them quickly this morning (lucky me, they were up $40 from yesterday.  I followed the sales with a simple covered call trade as follows:

Buy 100 sh. Conoco Phillips (COP) @ $63
Sell COP Oct 65 Covered Call at .95

There is a dividend date of record between now and the October expiry, the quarterly amount is .66...my goal was to be able to get this cash too, but it looks like the option expiry is before the dividend ex- date.

If my option is assigned, I will have a capital gain of about $200, an option premium of $95; and costs of around $32.  If it's not assigned, I'll collect the dividend of $66, in addition to the option premium, and costs are only $15; I'll revisit the stock strategy afterwards. 

As it stands today, the transaction will net between $140 and $260 - between three and five percent on the value of this IRA. This is an estimate and wouldn't be bad for the month of October, with the downside being I am locked in the position for a couple of weeks.

Baby steps, though.

Have I got this right?  Covered call strategists are welcome to comment.

Tuesday, October 4, 2011

And so it begins: Rescue My IRA

The year of my birth means that the demographers will group me in with the baby boomers.  I’m really at the tail end of that group, but my arguments fall on deaf ears.
Now that I have passed fifty also, all the talk about retirement – friends of mine who’ve earned pensions from federal, state or local organizations, especially – is starting to make me concerned.  We hear that social security won’t be there, and the date I’m eligible has already been extended once in my lifetime.
I began saving for retirement a long time ago, taking advantage of 401(k) accounts at employers, and when it has been offered, their matching funds.  But those balances have never seemed enough either, especially in light of what’s happening in the markets these days.
A few years ago, I thought it would be a good idea to consolidate some of the old 401(k) accounts from past employers into a single IRA.  The investment advisor I did this with soon left the firm he was part of, but we had managed to get my assets into one account.
I sought recommendations for another broker to work with, and made a change to a new guy who was working with ETFs and had a strategy.  The amount I sent his way was $77,000 or so. 
Since then, the market has tanked and our economy has had a tough go of it.  I even avoided opening the monthly statements I’d get from my broker, although I did open them a couple of times a year. The news wasn’t good.
Finally, last month I opened my statement.  I found that the balance had climbed back from it’s all time low, which was last year, when it hit $44,000.  I decided it was time to take some action, and roll this – now $47,000 – over into an IRA with Scottrade.
This blog will capture my efforts to “Rescue My IRA,” as the title says. 
By the way, I won’t be providing specifics on dollar amounts from now on. I’ve just offered those to emphasize the sense of urgency I’m feeling, as the need to prepare for retirement begins to occupy more and more of my thinking.