Wednesday, November 30, 2011

November 2011 Recap

As I've mentioned in a couple of past posts, I plan to give a monthy recap of trading history and results in my new Scottrade IRA.  The recap is loosely organized into the following sections:  account status, performance metrics, and a to-do list for the next month.  I expect the format and data reported will evolve over the first few entries until it is standardized - this will facilitate a regular evaluation of the results.

When I started the blog, I mentioned my disappointment with the results of having my IRA managed at one of the big broker houses - that I had invested about $77K only to see the value shrink to as low as $44K or so.  By the time I completed the rollover to Scottrade, which took nearly two months to complete, by the way, the amount invested in the IRA was $51,231 (amounts are always rounded on the blog).  My big-ass goal for this money is to generate 12% growth per year in the account.

Account Status:
Total Account Value, 10/31/2011 Statement:  $8,249 (account was opened during October, additional transfers were completed during November, taking the value up to $51K+, and will be reflected in the next recap)
Total Cash Reserve, 10/31/2011 Statement:  $404
Core Stock Positions:  AA (400 shares), CMCSA (200), COP (100), CSX (200), DIS (200), GE (400), GLW (200), IP (200)

Performance Metrics:
Option Premiums Collected (net, from opening through today):  $1,207
Capital Gains Collected (net, from opening through today): $167
Dividends Collected (recognized on the ex-date): $96
Interest on Cash Reserve (estimated total): $8
Total, Absolute Return:  $1,408
Absolute Return, Percentage Basis:  2.88%
Annualized Return, Percentage Basis:  17.55%

Next Month To-dos:
Two current positions will go ex-dividend next month:  DIS and GE; estimated dividends $140
Two covered call contracts expire in December:  CMCSA 22 and IP 29
Additional 401(K) from a past employer to be consolidated into the account
Write a trading plan to document strategies, goals, and processes

Consolidated Lessons Learned:

Basic covered call trading rule: I will concentrate on writing covered calls on the front (next) month; however, I will always seek to gain at least $100 on my trades and an estimated annualized return of at least 12%.

Covered call adjustment guideline:  On all adjustments – roll-ups and roll-outs, or combos – I will seek a net credit in order to maximize profits on this activity.
Potential for early assignment:  So far, I’ve had one position assigned early – COP in October.  This was because the stock was trading near the strike price during expiry week, and an ex-dividend date occurred at the same time and my shares were assigned on the ex-date.  I have no problem with taking the early profit, but on future trades I will consider the potential for early assignment and attempt to take advantage of it where possible.
Taking early profits:  So far, I’ve had limited opportunities to take profits at options expiry, although I expect that will become the routine situation in this account.  However, during sideways and down markets, it looks like there will be a periodic opportunity to close out option positions at a profit, as I was able to do on four holdings during the fourth week of November 2011.  Taking profits when the opportunity presents itself, as in this case, is okay and not a violation of my trading strategy.
Still need a formal trading plan:  I have enough fresh experience now to write a trading plan for the account, and hope to get that done during the month of December.  There are several good models to base this on within the “covered call community” so I will adopt one of these frameworks to use for my account.

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