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:

IP

Shares:

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

Options:

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

Dividend:

Collected $52.50 on the first 200 shares

Net Profit:
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%

Lessons Learned:

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.