June 2012 Results Preview

I had an interesting dialog with another member of the covered call community this month and it caused me to take a look at my trading plan a moment, to see how my approach may have evolved from when I first wrote that last fall when I began the Rescue My IRA account.

As I have grown comfortable with the to's and fro's of the market, I've had to come to terms with a few things.  For one, I don't treat my covered call contracts simply as an additional dividend yield on the shares they are based on.

They are separate securities, and as such, there is an opportunity to make a profit with them.  At the end of the day, that is more or less a yield on the stock, but I am finding that I trade them fairly actively once I see the delta moving downward.  I will consider buying the calls to close them out anytime the premium gets to .20, and I will look to roll-out or even roll-down the strike to get a new position that will net at least $100 in premium.

Following this approach, June looks to end up as a good month.  I posted recently about the dividends I stand to collect - $424, equal to just about 3.5% per year.  But I've also been busy on the covered calls side of the account, where I have netted premiums of almost $1,800 for the month.  That's an absolute yield of 1.4%, and 16.5% annually.

On the other hand, this meant I had traded myself out of all of my June contracts, so when expiration day came around today I didn't have anything to keep an eye on.  Instead, I got to thinking about the fact that I currently have contracts expiring in July, August, September, and even October, as follows:

At today's close, only three of the positions ended in the money.  So, maybe the extra time I have here is a good thing, since the market could make a swing back into the black for me.  But for planning purposes, it does give me pause - with so few August and September contracts on the books, how will I maintain my goal of making 1% per month in this account?

Maybe what will happen is I'll roll-out some of those July positions into August and September, so the transaction volume is there.  But even better would be a swing back to the upside, where I start getting the opportunity to pull out some stock gains.

Then again, those months are good quarterly dividend months, and I've been averaging about $400 monthly on those cycles.  So, really, I only need enough transactions to make $800 or so.  We'll have to see when the time comes.