New April CC Positions: MSFT and HAL

With a little money available after the March assignments, I went to work on finding some new positions.  I ended up with a 300 share position of MSFT, back to the well with that one after a February contract, and then I opened up a 200 share position on HAL.  Neither of these are dividend plays – they are simply steady options premium cash flow opportunities. 

They also helped me improve the monthly performance on the Rescue My IRA account.  My goal is one percent per month, and the current status is 0.87%, just shy of the goal.  There are a few things I could try here to make numbers, but I am not going to compromise any of my positions for that.  We’ll just watch and wait. 

Here are the details of the new MSFT and HAL positions:

MSFT (4-12 Position)

3/20/2012 Bought 300 shares at a total of $9,753.43

3/20/2012 Sold 3 MSFT Apr 2012 33 at a total of $136.24

Net Profit:

1) Options Income:  = $136.24
2) Dividend Income: $0.00
3) Capital Appreciation if assigned at $33.00:  $129.46

Total Net Profit if Assigned and dividend collected:  $136.24 + $0 + $129.46 = $265.70
Absolute Return on Investment: ($265.70/$9,753.43) = 2.72%
Annualized Return if Assigned (30 days):  2.72%*(365/60) = 33.14%
Yesterday, the date of purchase, MSFT’s closing price was out of the money (OTM).

HAL

3/20/2012 Bought 200 shares at average share price $34.69 (total $6,938.30)

3/20/2012 Sold 2 HAL Apr 2012 35  at $198.49 (total $198.49)

Net Profit:

1) Options Income:  = $198.49
2) Dividend Income: $0.00
3) Capital Appreciation if assigned at $35.00:  $44.52

Total Net Profit if Assigned:  $198.49 + $0 + $44.52 = $243.01
Absolute Return on Investment: ($243.01/$6,938.30) = 3.50%
Annualized Return if Assigned (30 days):  3.50%*(365/30) = 42.61%
Yesterday, the date of purchase, HAL's closing price was out of the money (OTM).

March Expirations: DIS and TGT Called Away

As expected, my TGT and DIS shares were called away at expiration last week.  These were some quick turnaround trades I had made last month after so many of my positions were called away in February – I also made a lot of April contracts back then, so March is turning out to be a slow month where I may not hit my goal of 1% return on the Rescue My IRA account. 

With just more than half the month gone, I am at half the monthly goal, but I only have the proceeds from these trades to work with.  April should be a better month with several contracts coming up.

I’m looking at adding one lot of WAG and three lots of MSFT next week as the new positions.  In the meantime, here are my results from March options expiration.

DIS – 200 Shares, basis $41.64, 42 MAR 2012 assigned

Option Premiums:  $122.49

Dividends Collected:  $0.00

Stock Gain:  $55.00

Total:  $177.49

Absolute return 2.13%

Annualized return (30 days) 25.93%

TGT – 100 Shares, basis $50.50, $52.50 Mar 2012 assigned

Option Premiums:  $56.74

Dividends Collected:  $30.00

Stock Gain:  $183.03

Total:  $269.77

Absolute return 5.34%

Annualized return (30 days) 65.00%

Hey, there’s a hat trick!

February 2012 Monthly Recap

I just got my statement for the Rescue My IRA account so here’s a recap of trading results for February 2012.  As with previous months, the monthly recap is loosely organized into the following sections:  account status, performance metrics, and a to-do list for the next month.

As is the case for the remainder of this year, the calculation of my ROI percentage is based on the statement valuation of the account at the end of December 2011, which was around $127K.  It remains my big-ass goal for this money is to generate 12% growth per year in the account that is about $15K per year in monetary terms – and February was a month where good progress was made!

After February’s experience, I can confirm that I have found it challenging to make optimal trades in this toppy market.  I predict that March 2012 will be much more challenging, as we have already seen some settling back from market highs...based on options set to expire this month and currently looking like they will be assigned, forecast dividends, and options activity to date, I may fall short of the monthly goal by $200-$300, but I will continue to work on it.


I have always been able to turn a profit on each trade I've made, but I am finding that my goals at establishing positions - $100 in cash back off of the first option transaction and the expectation of an annualized return of better than 12% has definitely help me back off from some trades.  That is the true value of my trading plan.  


I have enough experience in the market now, after six months or so with this account, that I know I am okay with most of my current positions - as long as I remain careful, prudent, and true to the trading plan.

That said, February turned out to be a good month for the Rescue My IRA account.  Here are the results:

Account Status:
Total Account Value, 2/29/2012 Statement:  $131,877
Total Cash Reserve, 2/29/2012 Statement:  $18,724
Core Stock Positions (as of 2/29/2012):  ACM (800 shares), COP (100 shares), CSX (400 shares), DIS (200 shares), GE (500 shares), GLW (700 shares), ITW (200 shares), NOC (200 shares), NVS (100 shares), SPLS (500 shares), TGT (100 shares), T (300 shares), WAG (200 shares)

Performance Metrics:
Option Premiums Collected (net, month of February):  $973
Capital Gains Collected (net, month of December): 1,455
Dividends Collected (recognized on the ex-date): $683
Interest on Cash Reserve (estimated total): $1
Total, Absolute Return:  $3,111
Absolute Return, Percentage Basis:  2.44%
Annualized Return, Percentage Basis:  29.66%

Next Month To-dos:
Two of the current positions go ex-dividend during the month of March, but none of them are likely to be called early on the ex-date:

·         ITW on 3/28 (there is an April call on this position)

·        SPLS on 3/21

There are only two covered call contracts currently forecast to expire in March (both are in the money): 

·         DIS 42 (x2)
·         TGT 52.50 (x1)

As in the past, as options expiration approaches I will take a look at deltas and see what is likely to be called away.

Consolidated Lessons Learned:

NVS Dividend Grab:  I moved pretty hastily to capitalize on the annual dividend for this stock.  In hindsight, it wasn’t a good idea to rush to pull the trigger.  I failed to include the price reduction for the shares that occurs on ex-dividend date…in this case, because of the annual dividend, it was substantial.  While I’ll still make a profit, it is below my goal for Rescue My IRA.  I’ll carefully manage the position and see what I can do to improve the situation. 

Adding to Position: GLW

Last month I changed my reserve policy in the Rescue My IRA account, revising it down from 20% of the account value to 10% - that left me with around $4,000 uninvested last week.  I wanted to invest in shares that would give me a chance to sell a couple of covered calls, and that led me to a position I already had established – GLW, where I already had 400 shares. 

Because I have 13 positions on the books and my goal is to manage between 12 and 15, it was okay by my trading plan to add to an existing position.  I added 300 shares last week and now hold 700.  I also closed out the 14 Mar 2012 contract I had on the old position, and wrote a 14 May 2012 on the whole position – I received a total of $215.24 for the seven contracts.

As with some of my other long-in-the-tooth positions, I have done several roll-outs on the GLW position:

15 Jan 2012

14 Feb 2012

14 Mar 2012

14 May 2012

Here’s the rest of the story, based on this new May contract.  As always, these calculations are net of commissions and fees in my Scottrade account.

GLW

Total option premiums:  $368.22

Total dividend payments:  $45.00

Total stock gain at $14.00:  $540.12

Total, absolute gain on the position:  $953.34

Total, absolute return percentage ($953.34/$9,241.88):  10.32%

Annualized total return percentage (held 180 days):  20.92%

Roll-up and Roll-out: COP

I saw this morning that my Rescue My IRA account was credited yesterday with the $66.00 dividend on my long-term holding COP stock.  I had a position in the stock in October, but it was called away on the ex-date back then.  I quickly did the analysis after that, and took another position soon after, at a basis price of $69.88. 

Here are the five(!) covered calls contracts I have sold on COP:

70 Nov 2011

72.50 Nov 2012

72.50 Jan 2012

72.50 Mar 2012

77.50 Apr 2012

I decided to adjust the position to capture some of the capital gain in the contract.  For covered call traders, this is called a roll-up, and it usually means to pay a high-premium for the intrinsic value (stock price above the option strike price) of the stock gain, but that is partially offset by the extrinsic value of the new strike (the time value of the new contract). 

Because of the high value of the 77.50, that leaves me in negative territory on the option premiums, but that is more than offset by the dividend I received and the stock gains that will result at this price.

Here’s the rest of the story, based on the current April contract.  As always, these calculations are net of commissions and fees in my Scottrade account.

COP

Total option premiums:  -$160.05

Total dividend payments:  $66.00

Total stock gain at $77.50:  $744.09

Total, absolute gain on the position:  $650.04

Total, absolute return percentage ($650.04/$6,987.91):  9.30%

Annualized total return percentage (held 180 days):  18.86%

Be Not Hasty - NVS Dividend Grab

Last week I wrote about a trade I did quickly to be a shareholder of NVS in time for it's annual dividend payment of $2.46.  That's a nice chunk of change and I thought it would be worthwhile to go for it, so I made a trade.  I moved so quickly, in fact, I forgot to factor in the price drop that comes on the morning of the ex-dividend date.


I started the Rescue My IRA account with the goal of being more aggressive about investing than I have in the past, but every position has to make a profit - some less, some more, some minuscule and some generous - but profitable, nonetheless, and so far that is working. On the upside, NVS is a pretty strong stock that meets my investment criteria, so holding it for a longer than average term doesn't bother me, and I will make some money on it, so we're good.


Still, when the ex-dividend price drop hit, the stock went down from my basis of $57.36 to $55.  So I am looking at biding time in this position.  I have done a roll-out of my original 57.50 Mar and rolled down also, to a 55 Apr.  That will extend my holding period to about 60 days, and bring my annualized return down some, below where I would like to see it, but I'll continue to monitor and see what else I might do to improve my profits.  


Here's the analysis:

NVS

Transactions

2/25/2012 Bought 100 shares at average share price $57.36 (total $5,736.00)
2/25/2012 Sold 1 NVS Mar 2012 $57.50 at $0.30 (total $21.74)

2/28/2012 BTC 1 NVS Mar 2012 $57.50 at $0.05 (total - $13.74)

3/2/2012 STO 1 NVS Apr 2012 $55.00 at $0.84 (total $75.74)

Net Profit:

1) Options Income:  = $84.23
2) Dividend Income: Ex-date was 2/27, $246.00
3) Capital Appreciation if assigned at $57.50:  -$253.11

Total Net Profit if Assigned and dividend collected:  $84.23 + $246 - $253.11 = $77.12
Absolute Return on Investment: ($77.12/$5,736.00) = 1.34%
Annualized Return if Assigned (60 days):  1.13%*(365/60) = 8.18%
Friday's closing price was out of the money for the 55 strike in the current option.