Dec 2012 Monthly Results (A Few Days Early)

I’m writing my month end post for December a few days early this year, since I’ve got a fairly busy couple of days ahead of me and I plan to put up a few retrospective posts during the first week of January as well.  So the account value I am reporting below is what was shown on Friday 12/28 shortly after the markets opened; I’ve also estimated the interest I’ve earned on cash returns at the rate I’ve been averaging this year, a laughable 7 cents.  For the most part, this will give an accurate presentation of the results – and I will correct anything where necessary when I do the year-end review post.

The account performance this month is a “good news – bad news” story.  I had a couple of interesting trading opportunities that performed well, and I collected $423.00 in dividends – those are the good news.  On the less desirable side, the HPQ shares I held were called away on their December expiry date – I’d forecasted this in my November results, and I took a hit on the shares – that would be the bad news, and I will start with that.

As I mentioned in my November results post, I believe I rushed into the HPQ investment.  I compromised my trading plan criteria by buying an S&P 3-star stock, albeit one with a great brand name.  It’s a turnaround play, but the shares have continued to show poor financial results – they made a bad acquisition last year, taking an earnings charge this year and having to make up for it in future quarters – all of which beat the share price down.

 

I worked hard to try and stay above water on HPQ, but I decided to sell a Dec 12 last month to pick up a little cash, and then let the stock be called away with a capital loss.  It is probably my biggest capital loss on a position of the year, and it is a lesson learned I’ll feature in the annual recap post. 

For good news, there is that collection of dividends - $423.00, a monthly return of 0.33% on the account value.  That far exceeds what you get from the bank, and the accumulation of all the dividends I collected this year is certainly a part of why the account still shows a positive return for the year.

On the covered calls side of things, I had two positions that had December contracts – ITW and SWK – and both were forecast to go ex-dividend during the month.  Interestingly, one-half of the ITW position was called on the ex-date at a gain of $354.44; I collected the dividend on the other half and rolled it out to January.  After the ex-date for SWK I bought to close the option contract there, and then rolled it out and up – also to a January contract.   I’m in a good spot with these shares and both positions are performing as I want them to, generating a 12% annualized return. 

On the hypothetical side of things, if I exclude HPQ from my monthly calculations – acknowledging it as a mistake I will try not to make again, between the covered call premiums, dividends, and share gain on ITW, I earned a return of $1,374.80 on the account – that’s more than 1 percent for the month, and meets my goal for Rescue My IRA.  I’ll just need to work on making sure I minimize special situations like that one in the future!

So, despite the good news – bad news theme, here are the statistics for December 2012:

Account Status:

·         Total Account Value, 12/28/2012 Market Open:  $131,252.12

·         Total Cash Reserve, 12/28/2012 Market Open:  $6,987.15

·         Core Stock Positions (as of 12/31/2012):   AFL (100 shares), CAT (100 shares), CSCO (500 shares), CSX (500 shares), DOW (300 shares), GLW (700 shares), HAL (300 shares), ITW (100 shares), LNC(400 shares), MSFT (300 shares), SWK (100 shares), SPLS (700 shares), URS (400 shares), WAG (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of October):  $597.36
Capital Gains Collected (net, month of October): -$3,279.66

Dividends Collected (recognized on the ex-date): $423.00
Interest on Cash Reserve (total): $0.07
Total, Absolute Return:  -$2,259.23
Absolute Return, Percentage Basis:  Negative
Annualized Return, Percentage Basis:  Negative

Next Month To-dos:

January is a slow month for dividend, and I have only one position with a declared ex-dividend date coming up – LNC.  They pay $0.12 per share, so assuming the shares aren’t assigned on January 8 (I have a January covered call written on them), I will collect $48. 

I also have quite a few options expiring next month:  CAT, HAL, ITW, LNC, SWK, and WAG.  Some are currently in the money as I write this post, and some aren’t.  Plus there is the market complexity that will result from the idiotic “fiscal cliff” situation – so we’ll see how it goes. 

Unless I have trades to report, the next few posts will be retrospectives on Rescue My IRA trading activities and results for the 2012 calendar year. 

Happy new year to all, and best wishes for meeting your own financial objectives!

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 this criteria 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.

Next week, I’ll post my December monthly results and then write an annual results post.  I’ll follow those with a look at three trades where things didn’t go as planned, attempting to assess where my strategy went wrong.  I also have five positions where my goals were exceeded – even though the positions were short-lived – and I will put together a recap post on them as well.

Here’s to more positions that perform as reliably as GLW and CSX have for me in 2012!

New Position: AFL...and Adding to LNC

I have been working on finding a couple of new positions, and today I added a second financial to the portfolio with stock AFL.  It didn’t use all of the investable capital I had on hand, so I added one lot of LNC, the other stock I added this month – that makes four lots, all with 26 Jan 2013 covered calls written on them.  For the AFL, I sold a 55 Feb 2013; in both cases, the stocks have ex-dividend dates between now and the options expiration date and I may see early calls.

Here’s the analysis.

AFL

The AFL position I established today consists of 100 shares.  My basis is around $5,399.00, or $53.99 per share.  I sold the 55 Feb strike on the single lot.    

Total option premiums:  $123.74

Total dividend payments (including the forecast Feb ex-dividend):  $35.00

Total stock gain at $55:  $83.89

Total, absolute gain on the position:  $242.63

Total, absolute return percentage ($242.63$5,399.00):  4.49%

Annualized total return percentage (held approx 60 days):  27.34%

LNC

I also added 100 shares to my LNC position today, which had been 300 shares.  The new basis is $10,346.80, or $25.87 per share.  I sold 26 Jan 2013 covered calls against all of the shares.

Total option premiums:  $258.96

Total dividend payments (including January ex-date):  $48.00

Total stock gain at $60.00:  $36.09

Total, absolute gain on the position:  $343.05

Total, absolute return percentage $343.05/$10,346.80):  4.42%

Annualized total return percentage (held 30 days):  53.83%

Roll-out and Roll-up for a Triple Play: SWK

My SWK position was subject to a Dec $72.50 covered call, and I was pretty comfortable with the thought of having the shares called on 12/21/2012 if the cards had fallen that way.  But the bad news about the fiscal cliff meant the market took a hit, and I grabbed the opportunity to roll out and up the shares.  I sold a Jan 75 contract at a rate that was basically a wash, but created the opportunity for a stock gain, which I wouldn’t have achieved if the stock were sold at $72.50.

The stock went ex-dividend earlier this month, and of course I’ve collected covered calls premiums on it since buying it in April.  My absolute return is 12%, meeting my goals, but annualized that is a 16.78% return.  I’m pretty comfortable with that.

The analysis below is based on the assumption that the position will be called away in January at the strike price of $75.  I’ll keep you posted…here is the analysis:

SWK

Shares:

April 2012 Bought 100 shares at a price of $72.92, total position basis $7,291.50 (includes commission)

At current strike of $75, would sell the shares at a net of $7,482.82, net of fees

Total stock gain:  $191.32

Options:

Total options income:  $574.71

Dividend:

Total dividends collected:  $139.00

Net Profit:
1) Stock gains:  $191.32

2) Options income:  $574.71

3) Dividend Income: $139.00

Total Net Profit after Assignment:  $905.03
Absolute Return on Investment: ($905.03/$7,291.50) = 12.41%
Annualized Return (270 days):  12.41%*(365/270) = 16.78%

Adjusting SPLS

On Wednesday and Thursday, the 19^th and 20^th of December, we had some good market days.  I used them to make an adjustment on SPLS, which I’ve been holding for a long time now.  It’s an underperforming member of the portfolio, and I am ready to spin out the 700 shares and get that capital reinvested. It’s a quality stock, but it just doesn’t seem to go anywhere.

My basis in the shares is $14.70 – an average share price.  I’ve sold covered calls at a $17 strike, and have systematically rolled the calls down and out so that I have generated a decent enough return with the premiums. I sold June 2013 $15 contracts most recently, but decided to close those and sell something closer in and at a lower strike, for the wash – now I have April $13s. 

I collect a nice dividend here too.  But to be honest, managing this position is no fun, and I’d like to be rid of it.  I’ll take the small loss at $13 if the shares are called away – I’m practically at breakeven…and who knows, if these shares start to rise I may be able to roll them up.

Here’s the analysis:

SPLS

Shares:

January and August 2012, bought 700 shares at an average price of $14.70, total position basis $10,288.42.

If the shares are called at the $13 strike, I will get back $9,082.82 net of commissions, for a loss of $1,205.60.

Options:

Total options income:  $741.52

Dividend:

Total dividends collected:  $336.00

Net Profit:
1) Stock gains:  -$1,205.60

2) Options income:  $741.52

3) Dividend Income: $336.00

Total Net Profit after Assignment:  -$128.08
Absolute Return on Investment: Negatory
Annualized Return (360+ days):  Negatory

Called Away Early and a Roll-out: ITW

After the ugly experience with my HPQ position earlier in the month - and the relief at having it called away, even at a loss - I have been watching the other two positions that had ex-dividend dates this month and that I’d set up with December expiries:  ITW and SWK.  The SWK position has a $72.50 strike, and the stock is near-the-money – having floated up into and out of in-the-money status over the course of the last two months.  In the case of ITW, as I was preparing my monthly forecast, the stock was in-the-money already, given the $60.00 strike I’d set for that contract.

I expected the ITW shares to be called last Friday when they went ex-dividend, and sure enough I had the email from Scottrade on Friday morning – except that only 100 shares of the 200 share position had been called away.  

The share price was adjusted and then dropped some more after the dividend calculation, so I decided to close out the remaining December option and roll the remaining 100 shares out to January.  Even though I will now pay a commission on the second transaction, I was able to add about $50 net to the total return on this position, in addition to the $38 in dividends I stand to collect for one lot of the shares.

In the analysis that follows, the calculations for the position assume being called away in January – and I have exceeded my goal of a 12 percent annualized return, using the full original basis.  If the position isn’t called away, of course I will have an adjustment post up very soon.  

Until then, here is the analysis:

ITW

Shares:

March 2012 Bought 200 shares at an average price of $56.37, total position basis $11,274.00

12/14/2012 Sold on assignment 100 shares at $5,982.89, average share price $59.83 – the calculations below assume that I will have a similar transaction next month.

Total stock gain:  $691.78

Options:

Total options income:  $411.86

Dividend:

Total dividends collected:  $262.00

Net Profit:
1) Stock gains:  $691.78

2) Options income:  $411.86

3) Dividend Income: $262.00

Total Net Profit after Assignment:  $1,365.64
Absolute Return on Investment: ($1,365.64/$11,274.00) = 12.11%
Annualized Return (330 days):  12.11%*(365/330) = 13.40%

New Position: LNC

In general, I like to get the proceeds of closed out positions reinvested as quickly as possible – and that’s especially the case on the ones I’ve taken hits on, like I did recently with HPQ.  Still, I had been sitting on a little bit of extra cash over and above the 5% reserve balance I usually reserve in the Rescue My IRA account.  I decided I needed to get to work on getting the money back to work as soon as possible.

The one lesson learned I have decided to take away from HPQ is to not compromise on my selection criteria regarding the stock quality.  Here I take advantage of the research that S&P does to qualify a short list of NYSE and NASDAQ shares, by selecting from the list of four- and five-star stocks (HPQ was a three-star, and I have a few other positions that were, which I will begin weeding out). 

One of the reasons I had compromised this rule was I was finding that there didn’t seem to be as many opportunities for covered call positions as I would have liked – I had further qualified my selection criteria by eliminating financials and banks in the aftermath of the financial crisis that the country went through in 2009.  As I began doing screens for a new position, I decided that this was a rule I could relax now, as the economy continues to improve.  

My screen turned up four interesting positions this time, but three of them were in industries I already have acceptable concentrations in, or they were direct competitors to companies I’m already holding – such as DE, while I am holding a CAT position.  LNC was the only company identified that didn’t fall into that category, and since I had a newly opened mind about financial shares, I pulled the trigger.

Here’s the position starting analysis: 

LNC

Transactions

12/13/2012 Bought 300 shares at average share price $25.84 (total $7,753.00)
12/13/2012 Sold 3 LNC Jan 2013 $26.00 for a total of $202.22

Net Profit:

1) Options Income:  = $202.22
2) Dividend Income: Ex-date is January 8, dividend is $0.12 ($36.00)
3) Capital Appreciation if assigned at $26:  $29.89

Total Net Profit if Assigned and dividend collected:  $268.11
Absolute Return on Investment: ($268.11/$7,753.00) = 3.46%
Annualized Return if Assigned (30 days):  3.46%*(365/30) = 42.07%

If the shares are called away on the ex-dividend date, the actual return goes down to 2.99%, but the annualized return is still 36.42%.  We’ll see how it goes.    

CSCO - Adding Shares and Rolling Up and Out

I added 100 shares to my 400 share CSCO position and then rolled-up and out the covered call I had established.  

Under the current contract, I’ve set up a triple play that rolls out over a six month long investment.  We’ll see how it works out.

Here’s a summary:

CSCO

Added 100 shares and rolled out and up the 19 Feb to 20 Apr

Total Option Premiums:  $308.63

Total Dividends:  $126.00

Total Stock Gain (if assigned at $20):  $450.71

Total Absolute Gain on Position: 11.66%

Absolute Return on Position: 23.64%

So, the position currently has met my annual return goal for Rescue My IRA investments, assuming the contract is assigned in April, even though I will have held the stock for only six months.

Taking the Hit on HPQ

HPQ had a new CEO, and because it met my investment criteria at the time – August 2012, I took the plunge and bought 400 shares.  After some initial bad earning news, I added 100 shares with the hopes of leveraging my basis down, and I decided to adjust my covered call strategy on the position to focus on cash yields.  Finally, last month, there was even more bad news – so I decided to give up.'

Counted by themselves, the returns I earned from call premiums and dividends are almost 9 percent, which annualized meets my goals on returns.  However, I’ve had the position called away this week on the ex-dividend day, so I have taken a sizable stock loss on HPQ. 

That smarts, but I figure that is something that will happen from time to time – it is one of three instances this year where I’ve decided I could do better reinvesting the capital than waiting for a comeback, the others being ACM and ADM. 

I plan on a series of 2012 recap posts later this month, one of which will feature the ACM, ADM, and HPQ trades.  Until then, here’s the story of the HPQ position.

HPQ

Shares

8/20/2012 – Bought 400 shares for $7,919.00.

9/25/2012 – Bought 100 shares at $1,697.99.

Share basis of 500 shares is $19.23

Yields

Total Option Premiums:  $802.16

Total Dividends:  $52.80

Total Stock Loss:  -$3,634.10

Total Absolute Gain/Loss on the position:  -$2,779.14

So my actual loss on this position works out to a -28.90 percent return.  As I noted above, the returns from option premiums and dividends alone worked out to 9.00 percent or so, enough to meet my goals. 

It’s just an example of picking a bad stock.  Fortunately the portfolio model provides coverage for these periodic losses!

November 2012 Results

For all intents and purposes, November was a month where the Rescue My IRA made its numbers – even though I wouldn’t have expected that when the month began, on the heels of Superstorm Sandy and the election that foretold a potential change in the administration.  I expected a pretty bad month in the market, as a matter of fact; however, my statement value on the account is up nearly $2K. 

One of the covered calls was assigned last month – for F.  That was a position I had designed for a quick turnaround and was successful, as I posted earlier in November when the call was assigned. 

Scottrade surely loves me, as I executed 26 BTCs and STOs last month on my way to generating net call premiums of $948.  Some months are like that – although I would hope that when I come close to meeting my goal of 1% in income per month like this, the account value at the end of the year would show it also.  I need to do some more reading up on this in order to evaluate the account’s performance for the year.

It’s likely that some mistakes contributed to this phenomenon – who am I to think I wouldn’t make a few over the course of a year?  I’ve written previously about ADM and ACM – two stocks that cost me some gains last year; now I have HPQ on my hands.

Admittedly, I rushed into this investment (one lesson learned here is not to rush again, my proceeds from the F assignment are still sitting on the sidelines), and bought an S&P 3-star stock with a great brand name.  Then we saw poor financial results and the shares took a hit.  Now we hear that they made a bad acquisition last year, taking an earnings charge this year and having to make up for it in future quarters. 

That stock is going to take some time to recover – I’ve worked hard to try and stay above water on it, but the time has come to take action.  I sold a Dec 12 last month, a last effort to pick up a little cash, I am going to let the stock be called away with a capital loss by the end of the month.  Countering that, I have two positions that look to be ITM on options day – ITW and SWK, both good news stories.

So, here are the statistics for November 2012:

Account Status:

·         Total Account Value, 11/1/2012 Statement:  $129,584.26

·         Total Cash Reserve, 11/1/2012 Statement:  $11,737.76

·         Core Stock Positions (as of 12/1/2012):   CAT (100 shares), CSCO (400 shares), CSX (500 shares), DOW (300 shares), GLW (700 shares), HAL (300 shares), HPQ (400 shares), ITW (200 shares), MSFT (300 shares), SWK (100 shares), SPLS (700 shares), URS (400 shares), WAG (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of October):  $947.45
Capital Gains Collected (net, month of October): -$39.61

Dividends Collected (recognized on the ex-date): $311.50
Interest on Cash Reserve (total): $0.08
Total, Absolute Return:  $1,219.42
Absolute Return, Percentage Basis:  0.96%
Annualized Return, Percentage Basis:  11.63%

Next Month To-dos:

As a dividend month, December is quite busy, like September.  Seven positions are forecast to go ex-dividend this month, although two or three of them are likely to be called away:  DOW, HAL, HPQ, ITW, SPLS, SWK, and URS. ITW and HPQ are in the money today, and SWK is close.

If these shares are assigned, I will have in excess of $10K to reinvest, and will have some decisions to make later in the month.  I’m looking forward to it, and will keep you posted!

Adjusting Two Mainstays: GLW and CSX

GLW and CSX are two positions that I have held since the start of the Rescue My IRA account – I have 700 and 500 shares in them respectively.  Last week I rolled them out to May 2013.  These transactions did result in their staying on target for my 12% annualized return, although extending so far into the back months does mean I am probably at the end of the run for them, so I would like to see them hit the strike price as these covered calls hit expiration. 

Here’s a summary of the positions as of these most recent trades:

GLW

The most recent roll-out to 13 May 2013 covered calls is the tenth contract I have written on these shares.  In looking over the history of these transactions, I have also written covered calls at the 12 and 14 strike.  It would be good to get 14 for the shares, but for now I am holding with a strike price of 13.

Rolled out the 13 Feb to 13 May

Basis of 700 share position:  $9,241.88, or $13.20 per share

Total Option Premiums:  $1,451.59

Total Dividends:  $276.00

Total Stock Gain (if assigned): -$159.88

Total Absolute Gain on Position: $1,567.71

Absolute Return on Position: 16.96%

On an annualized basis, after holding these shares for 510 days, the return works out to 12.14%

CSX

This is a 500 share position that epitomizes what I am trying to do with this account.  I want to earn returns from option premiums, dividends, and stock price gains.  I’ve been able to do that quite frequently with short-term trades, but here is one I have held for 510 days, since the beginning of the account.  And the shares continue to perform for me.

Rolled out the 22.50 Feb to 22.50 May

Basis of 500 share position:  $10,861.01, or $21.72 per share

Total Option Premiums:  $1,479.74

Total Dividends: $338.00

Total Stock Gain (if assigned): $370.99

Total Absolute Gain on Position: $2,188.73

Absolute Return on Position: 20.15%

Annualized Return on Position (held 510 days): 14.42%

I’ll continue to manage this one, but I do wish that they would all work out as well as CSX has.

November Adjustments, Continued: SPLS, URS, and DOW

Last week, I mentioned that I was going to focus on managing Rescue My IRA according to my trading plan as a way to keep earning returns through what looks to be a volatile market despite – or in spite of – a tepid expansion.  Making things a bit more complex are the ongoing budget crisis in this country.

So this post will be about three more positions I’ve made adjustments on this month.  I still have a couple to report on and will get that post up soon.  Meanwhile, with the proceeds from these options and the F call assignment I need to find a new trade to complete the month.

Here’s a summary:

SPLS

Here is a stock that gets a great S&P rating, but has been trading out of the money since I established the position last February.  My solution has been to roll down and out the 500 share position to continue to produce a yield.  I’ll manage carefully to ensure a break-even or better result when I finally allow the stock to be called away.

Rolled out the 13 Dec to 12.50 Jan

Total Option Premiums:  $762.56

Total Dividends:  $259.00

Total Stock Gain (if assigned): -$1,555.60

Total Absolute Gain on Position: -534.04

Absolute Return on Position: Negative

In order to get this position to breakeven or better, I will need to sell the shares at $13 or better.  Assuming I will have one more adjustment before I terminate the trade, this seems doable.

URS

In contrast to SPLS, here is a 400 share position that has generated better than 10% between the call premiums and dividends that I have collected on it.  Plus, at the 40 strike there is a small stock gain, so this trade is going as you’d hope they all would.

Rolled out the 40 Jan to 40 April

Total Option Premiums:  $1,477.91

Total Dividends (including forecast ex-dividend dates through contract): $240.00

Total Stock Gain (if assigned): $155.82

Total Absolute Gain on Position: $1,873.73

Absolute Return on Position: 11.84%

Annualized Return on Position (held 330 days): 13.09%

So this position will meet my 12% goal, even if assigned under the current contract.

DOW

Here is a 300 share position that is working out according to plan.  I sold the 32 Dec in order to have a call premium that met my requirements for individual transactions (I like to net at least $100 where ever I can).  The tradeoff at that strike would have been a small stock loss but I fixed that with this trade.

Rolled out and up the 32 Dec to 33 Mar

Total Option Premiums:  $632.69

Total Dividends (including forecast ex-dividend dates through contract): $256.00

Total Stock Gain (if assigned): $327.47

Total Absolute Gain on Position: $1,216.16

Absolute Return on Position: 12.73%

Annualized Return on Position (held 270 days): 17.21%

As with URS, this position meets my goal of 12% return if assigned under this current contract.

Called Away on F

This is one of those cases where I wish I could put more trades together like this more often, but my little position in Ford, symbol “F,” has been called away during the November expiration.  This was a 60-day trade, and I set it up as basically an in-the-money trade – the average share price was just a little more than $10, and I sold November 10 calls when I established the position with some proceeds from call assignments back in September.

Basically, I was trading for the option premium and a dividend, at first with the hope of an early assignment – which should have happened but didn’t – because I would have turned the profit a few weeks early.  As it happened, because the call wasn’t assigned, I was able to collect the dividend on these shares as well. 

All totaled, I netted $128.38 on the trade, which had a basis of $4,022.50.  That’s 3.19 percent that I collected over a 60 day investment, working out to an annualized return – remember I calculate this simply as a metric to help evaluate trades – of 19.42%, which exceeds my goal of a 12% return.

Here is the record on this position, as usual, net of fees and commissions:

F

Shares:

9/18/2012 Bought 400 shares at an average price of $10.06, total position basis $4,022.50.

11/16/2012 Sold on assignment 400 shares at $3,982.89, average share price $9.96.

Total stock gain(net of commissions):  -$39.61

Options:

9/18/2012 Sold to open 4 10 Nov 2012 contracts, net $147.99

Total options income:  $147.99

Dividend:

Total dividends collected:  $20.00

Net Profit:
1) Stock gains:  -$39.61

2) Options income:  $147.99

3) Dividend Income: $20.00

Total Net Profit after Assignment:  $128.38
Absolute Return on Investment: ($128.38/$4,022.50) = 3.19%
Annualized Return (60 days):  3.19%*(365/60) = 19.42%

Some Adjustments for a Sideways Market: MSFT, HPQ, SWK

So far this month, the market has been fairly tepid.  At least one of the big market events has happened now that President Obama was re-elected, but the bigger potential impact looms with the “fiscal cliff” hanging out there unresolved. 

So while the economy does seem to be finding its footing ever so slowly, this dark cloud looms on the horizon, so we’re trading more or less sideways.  A quick resolution of this turmoil is in order and I hope our politicians are up to it.

Meanwhile, I’ve been taking advantage of the action to roll-out a few positions.  I’ll post a few of them today and then get the rest of them posted in a few days.

Here are the first three: 

MSFT

Rolled out and up the Jan 32.50 to Feb 33

Total Option Premiums:  $419.68

Total Dividends (including forecast ex-dividend dates through contract): $180.00

Total Stock Gain (if assigned): $129.46

Total Absolute Gain on Position: $729.14

Absolute Return on Position: 7.48%

Annualized Return on Position (held 270 days): 10.11%

The MSFT position is marginally underperforming at present.  However, I can accept this transaction if it was to come to pass – it’s very close to my objective of 12% annual on invested capital.

HPQ

Rolled down the 17 Jan to 16 Jan

Total Option Premiums:  $605.18

Total Dividends (including forecast ex-dividend dates through contract): $105.60

Total Stock Gain (if assigned): $0

Total Absolute Gain on Position: $710.78

Absolute Return on Position: 7.39%

Annualized Return on Position (held 140 days): 19.27%

Note: if this position were assigned at 16, I will take a loss on the position.  However, I monitor these positions closely on a daily basis.  If HPQ begins a recovery I will take quick action to roll the stock up to protect myself from a capital loss.

SWK

Rolled out and down the 75 Nov to 72.50 Dec

Total Option Premiums:  $580.22

Total Dividends (including forecast ex-dividend dates through contract): $82.00

Total Stock Gain (if assigned): $-58.68

Total Absolute Gain on Position: $603.54

Absolute Return on Position: 8.28%

Annualized Return on Position (held 240 days): 12.59%

October 2012 Results

As I expected it to be, October was a challenging month during the account.  The market has been bouncing along at high values, but we have all of these reasons to doubt that the current levels are sustainable.  I found it difficult to complete new profitable trades, although I was able to collect some dividends and did generate some cash from buying and selling covered calls.  But there were no call assignments and no capital gains – all in all, it was just a breakeven month. 

Here are the statistics for October 2012:

Account Status:

·         Total Account Value, 11/1/2012 Statement:  $127,568.73, a value that is close to the January 1 value of $127,606.44.

·         Total Cash Reserve, 11/1/2012 Statement:  $6,605.73 (Fascinating!  Exactly $3.00 more than last month!)

·         Core Stock Positions (as of 11/1/2012):   CAT (100 shares), CSCO (400 shares), CSX (500 shares), DOW (300 shares), F (400 shares), GLW (700 shares), HAL (300 shares), HPQ (400 shares), ITW (200 shares), MSFT (300 shares), SWK (100 shares), SPLS (700 shares), URS (400 shares), WAG (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of October):  -$90.84
Capital Gains Collected (net, month of October): $0.00

Dividends Collected (recognized on the ex-date): $128.00
Interest on Cash Reserve (total): $0.08
Total, Absolute Return:  $37.24
Absolute Return, Percentage Basis:  0.03%
Annualized Return, Percentage Basis:  0.36%

Next Month To-dos:

As a dividend month, November will similar to August, which was a good month.  Five positions will go ex-dividend this month:  CSX, GLW, HAL, MSFT and WAG.  I will collect $311.50 from dividends, meaning I need to make up $900 or so to make my 1% return goal.

As of this writing there is only one position with a November contract – 400 shares of F at a 10 strike, a position that is in the money.  It won’t earn a gain if the stock is called away, I designed the trade to make money basically at the purchase price based on the option premium and dividend that I have already collected.  So it looks like I’ve got my work cut out for me on the covered call buying and selling side.

I’ve taken advantage of down market days over the last two weeks and closed some of the options – so at some point during the month I hope to be able to sell new contracts and thus will begin to generate some income. Plus, assuming the F shares are called away, I’ll have about $4,000 to make a new position with…

I’ll keep you posted.