April 2012 Results

Just as with March, I spent a lot of April on the road, although not quite as much.  And then we finished the project we were working on, so I could get back to paying attention to the Rescue My IRA account. 

This month, I did achieve the goal of one percent return, taking advantage of a sideways market to roll-out the seven April positions, which generated quite a few call premiums.  There was an early call on my T shares, on their ex-dividend date – that capital gain helped offset the negative cash flow from the NVS position that was (thankfully) assigned later in the month.

There was another unpleasant surprise in the NVS position:  when the annual dividend was credited to the account, there was a foreign tax liability that accrued, reducing the return by another $87.  So we’ll chalk that ill-considered trade up to experience, and be happy that I only lost one percent on the entire trade.  More below in lessons learned.

Here are the statistics for the month:

Account Status:
Total Account Value, 4/30/2012 Statement:  $135,563.91
Total Cash Reserve, 3/31/2012 Statement:  $6,407.26
Core Stock Positions (as of 4/30/2012):  ACM (800 shares), ADM (300 shares), COP (100 shares), CSX (400 shares), GE (500 shares), GLW (700 shares), HAL (300 shares), ITW (200 shares), MSFT (300 shares), NOC (200 shares), SWK (100 shares), SPLS (500 shares), WAG (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of April):  $1,722.26
Capital Gains Collected (net, month of April): -$94.96
Dividends Collected (recognized on the ex-date): -$86.87
Interest on Cash Reserve (estimated total): $0.18
Total, Absolute Return:  $$1,540.61
Absolute Return, Percentage Basis:  1.22%
Annualized Return, Percentage Basis:  14.70%

Next Month To-dos:
May will be an busy month for dividend-induced activities, since there are a total of eight positions that will see their ex-dates come and go.  A number of these have been trading at or near the break-even for an early call, so we’ll watch and see what happens: 

·         ADM on 5/14

·         MSFT on 5/15

·         COP on 5/16

·         WAG on 5/17

·         GE on 5/23

·         NOC on 5/23

·         CSX on 5/27

·         GLW on 5/29

If all of the dividends are collected, the amount will be $532, about 0.40% return, or half of the month’s goal.  As of 4/30, it looks like COP, CSX, GLW, and WAG face the possibility of early calls on their ex-dates.

There are three covered call contracts forecast to expire in May:     

·         CSX 22.5 (x4)

·         GLW 14 (x7)

·         NOC 62.5 (x2)

Consolidated Lessons Learned:

Be not hasty, continued:  I’ve posted about the NVS position a few times, but now that I am out of that position I can elaborate fully on it and the lessons I learned from a hasty trade that ended up being too good to be true.  NVS pays a handsome annual dividend that approaches 4%, in the weeks leading up to its ex-dividend date I decided to buy 100 shares in a dividend grab.  In keeping with the Rescue My IRA trading plan, I also sold a covered call on the position. 

When the ex-date came around, the shares dropped by the amount of the dividend – this always happens, but in this case, for some reason, I hadn’t figured the impact of this standard occurrence into my returns.  My response was to BTC the old covered call, and roll-out the position at the next lower strike.  That gave me some premiums to protect what would now be a strike at less than my purchase price.

I recalculated everything before making that trade, and found myself at pretty much break-even.  Becoming more and more disappointed with this trade, I also somewhat lost my patience, drumming my fingers every time I looked at its status and checked the calendar.  When could this be over with?  Not soon enough!

Finally, the date of the dividend payment came around.  The next day, I checked my account to see if the cash had come in, and it had…but there was also this foreign tax hit of around $87, which reduced the dividend percentage to around 2.5%. 

Worse yet, that subtracted from my returns calculation – putting me just below break-even.  I ended up losing about 1% on this one – somewhere around $60 off of my original purchase of the shares. 

As I mentioned, I will chalk this one up to experience.  I may make a move on an annual dividend payment like this one again sometime, but when I do, I will have a couple of additional checkpoints to evaluate before I pull the trigger!