Like many of my generational colleagues, the baby boomers, I've found that my best intentions about saving for retirement aren't always meeting the mark. In 2011, I took some old 401(k) accounts and combined them into a self-directed IRA with Scottrade, and established a strategy of using covered calls to stabilize and enhance my returns. Rescue My IRA chronicles the progress of my IRA rescue using this approach.
Monday, January 23, 2012
Early Call on IP
Last Thursday I received a notification that my CAT shares were called away, but 200 shares of my IP position were also called early.Those shares were among the first I bought when I opened the Rescue My IRA account – I’m fondly remembering that I made that purchase from a hotel room in Vegas.
As my trading strategy evolved and I began to plan for the additional funds coming in from rolling over the second 401(k), I thought I might add to the IP position and bought 100 more shares in mid December.I sold a covered call on these shares as I had with the earlier 200, only at a different strike price – they were at 27, and these were at 29.
Looking at the records on this position, it has everything, including lessons learned for my evolving trading strategy. I see that I made at least two adjustments to the covered calls, collected a dividend, and then had all 300 shares called away at a profit.I can’t complain, and I will keep IP in mind for another trade down the road.
Here is the record on this position, as usual, net of fees and commissions:
10/13/2011 Bought 200 shares at $25.32 (total $5,064.48)
12/19/2011 Bought additional 100 shares at $27.97 (total $2,797.77)
Total position cost $7,862.25, average share basis $26.21
1/17/2012 Sold on assignment 200 shares at $27.00 (net $5,382.89)
1/20/2012 Sold on assignment 100 shares at $29.00 (net $2,882.89)
Total position sold at $8,265.78, average share price $27.55
Total stock gain:$419.75
10/13/2011 STO 26 Oct 2011 total $196.48
11/8/2011 BTC 26 Oct 2011 total -$543.50
11/8/2011 STO 29 Dec 2011 total $190.48
12/12/2011 BTC 29 Dec 2011 total -$29.50
12/12/2011 (2) STO 27 Jan 2012 total $338.49
12/19/2011 (1) STO 29 Jan 2012 total -$54.74
Total options income:$207.19
Collected $52.50 on the first 200 shares
1) Stock gains: $419.75
2) Options income:$207.19
3) Dividend Income: $52.50
Total Net Profit after Assignment: $419.75 + $207.19 + $52.50 = $679.44
Absolute Return on Investment: ($679.44/$8,265.78) = 8.22%
Annualized Return (97 days): 8.22%*(365/97) = 30.93%
There were a couple of lessons learned in this trade.Most importantly, this is the one where I made a goal of not taking a loss on options adjustments, as I did with the 26 Oct 2011 contract.The second one was that it is okay to go back to the well on a good stock for another trade, as I did when I found that I had enough cash to put back into shares and decided the best option was to go with one I already had.