Adjustments: Rolling out CSX, DOW, and GLW

I’m still working on digging out of the low strike prices for some of my positions.  I want to keep the math in the Rescue My IRA account easy, so I am going to try and keep my strike prices at nearly break-even or better going forward, and mostly working it out so that I am getting a premium.  

Recently I’ve rolled out old faithfuls GLW and CSX, and also DOW. 

I had to push out into the back months again for DOW and GLW, and I’m not happy about it, since I have a lot of money sitting in Dec, Jan, and Feb contracts. But these positions were established so that they meet my goal of at least 12% returns annually – and really, that’s all that matters at this point.

Here’s a summary:

CSX

This train keeps rolling.

Rolled out the 22.50 Aug to 22.50 Sep

Total Option Premiums:  $1,003.38

Total Dividends (including forecast ex-dividend dates through contract): $198.00

Total Stock Gain (if assigned): $370.99

Total Absolute Gain on Position: $1,685.86

Absolute Return on Position: 19.28%

Annualized Return on Position (held 300 days): 23.45%

DOW

Rolled out the 33 Dec to 33 Dec

Total Option Premiums:  $372.47

Total Dividends (including forecast ex-dividend dates through contract): $128.00

Total Stock Gain (if assigned): $137.46

Total Absolute Gain on Position: $637.93

Absolute Return on Position: 9.90%

Annualized Return on Position (held 220 days): 16.42%

GLW

GLW was hit with an earnings double whammy this week when some of its customers reported lower sales on their products, and then they missed expectations on their own earnings.  The new Feb position should give this position the time it needs to get everything worked out.

Rolled out and up the 13 Nov and 12 Aug over the course of several days to 13 Feb

Total Option Premiums:  $1,357.10

Total Dividends (including forecast ex-dividend dates through contract): $202.50

Total Stock Gain (if assigned): -$159.88

Total Absolute Gain on Position: $1,399.72

Absolute Return on Position: 15.15%

Annualized Return on Position (held 420 days): 13.16%

New Positions: VIAB and IP

As the July expiration date approached and it began to look like my MAS and NOC positions would be called away, I began a scan for potential new positions that would meet the standards I’ve outlined in my trading plan.  I found six potential trades:  VIAB, WOR, T, CMCSA, CSCO, and SMP. 

After pulling some basic information on these stocks, I found that I was looking at a bunch of three and four star investments.  I then screened further for positions that included a dividend ex-date before an option with an appropriate strike price, either in August or September.  My list was narrowed to VIAB and WOR – and I planned to make a purchase on Monday…although, eventually I took a look at an old favorite, IP, as well.

When Monday came around, WOR had worked itself out of the price range I had set for it, and I was left with the choice of how much to invest in VIAB and IP, finally choosing to buy one lot of VIAB and two of IP.  I have enough cash in reserve for one additional lot of either of these stocks, and am considering a follow-on purchase in due time.

Here’s the analysis on the new VIAB and IP positions: 

VIAB

Transactions

7/23/2012 Bought 100 shares at $4,579.00
7/23/2012 Sold To Open 1 VIAB Sep 2012 $47.00 at $101.74

9/13/2012 ex-dividend date for VIAB, if not called away $27.50

Net Profit:

1) Options Income:  = $101.74
2) Dividend Income: The ex-date is before September expiration, potential dividend is $0.275 ($27.50)
3) Capital Appreciation if assigned at $47.00:  $103.89

Total Net Profit if Assigned and dividend collected:  $101.74+ $27.50 + $103.89= $233.13
Absolute Return on Investment: ($233.13/$4,579.00) = 5.09%
Annualized Return if Assigned (60 days):  5.09%*(365/60) = 30.97%
On the purchase date, VIAB was out of the money.   

IP – 8/12 Position

Since this is my second IP position, I am designating it with the initial options expiration date for the trade.

7/23/2012 Bought 200 shares at average share price $32.30 (total $6,459.00)
7/23/2012 Sold 2 IP Aug 2012 33, total $98.49

8/13/2012 IP ex-dividend date, if not called away $52.50

Net Profit:

1) Options Income:  = $98.49
2) Dividend Income: Ex-date is 8/13, $52.50
3) Capital Appreciation if assigned at $33:  $123.89

Total Net Profit if Assigned and dividend collected:  $98.49 + $52.50 + $123.89 = $274.88
Absolute Return on Investment: ($274.88/$6,459) = 4.26%

Annualized Return if Assigned (30 days):  4.26%*(365/30) = 51.78%
On the purchase date, IP was out of the money.   

As Expected: NOC and MAS Called Away

As expected, my positions in NOC and MAS were called away on Saturday after the July options expired in-the-money.  I shared my analysis of those positions last week, but will repeat it below.

NOC – 200 Shares, basis $59.93, 60 Jul 2012 to be assigned

Option Premiums (total):  $589.71

Dividends Collected:  $210.00

Stock Loss:  -$3.36

Total:  $796.35

Absolute return 6.64%

Annualized return (150 days) 20.21%

MAS – 200 Shares, basis $12.24, $12 July 2012 to be assigned

Option Premiums:  $130.49

Dividends Collected:  $15.00

Stock Gain:  -$65.00

Total:  $80.49

Absolute return 3.29%

Annualized return (20 days) 60.03%

I have to admit that it is a pleasant change to have a couple of trades work out with the shares being called away.  In this market, it has been a few months since that happened.

I’m working on reinvesting the proceeds from these new trades and will have a post about that before the end of the week.  Catch you later!

Expiration Forecast: MAS and NOC

As the options expiration date approaches this Friday, it appears that I will have a couple of the positions called away for the first time in a few months.  The positions are as follows:

·          MAS (200 shares) – 2 July contracts at $12

·          NOC (200 shares) – 2 July contracts at $60

Neither position has been particularly long term for me.  I bought NOC in February, when I was traveling extensively, and have held it for about 150 days, starting with a May contract and rolling out to June and then July.  The MAS position is one I have only held for 20 days.

I use the Delta statistic as a probability indicator sometimes.  In this case, the MAS position – trading in the money at $13.78 at yesterday’s close, showed a Delta of .85, and the NOC – trading ITM at $63.49, showed a Delta of .92.  While neither has a 1.00 Delta, with only four trading days left it does seem likely that these will be called away from me. 

Here’s the history:

NOC – 200 Shares, basis $59.93, 60 Jul 2012 to be assigned

Option Premiums (total):  $589.71

Dividends Collected:  $210.00

Stock Loss:  -$3.36

Total:  $796.35

Absolute return 6.64%

Annualized return (150 days) 20.21%

MAS – 200 Shares, basis $12.24, $12 July 2012 to be assigned

Option Premiums:  $130.49

Dividends Collected:  $15.00

Stock Gain:  -$65.00

Total:  $80.49

Absolute return 3.29%

Annualized return (20 days) 60.03%

I’d like to get back on the pattern where I am seeing some of the positions called away every month.  I’ll report back next Monday if these are actually called.

Looking at the Back Months for Adjustments: ADM, HAL, MSFT, and WAG

This is a volatile market and looks to stay that way through the end of the year.  The choppy seas originate from a tepid expansion that looks like it could falter at any moment, problems in Europe, and the upcoming elections.  In this environment, seems like the thing to do is buckle down and manage the Rescue My IRA account according to my trading plan.

My approach last month was to trade for trading’s sake – I didn’t have a lot of positions that looked to get to an in-the-money status, so I set out to make adjustments by rolling the options out.  In a couple of places I found that I had made some bad judgment calls, selling covered calls at lower strike prices than my original purchase price for the underlying shares – although my account balance held its own and would have been okay in the short term if the shares were called away at these strikes, I felt I had made a compromise that could affect my long term returns.

I decided to work on digging out of the low strike prices for those positions, and to do so at a premium if I could.  I also have a few positions that are at 52-week lows at the moment; I’m going to be holding these for a while longer, given the economic situation.  I had to look at back months to swing this; I worked on four of my positions: ADM, HAL, MSFT, and WAG. 

I’ve finished the roll-outs and roll-ups, and have accomplished that at nearly break-even – at total cost in premiums of -$26.04, which will be offset and then some at the new strike prices.  With the current contracts, three of the four positions are set to meet my goal of at least 12% returns annually, the only exception being HAL.  That one yields 8.45% annualized – it’s a positive return, and I’ll take it.

Here’s a summary:

ADM

Rolled out the 31 Aug to 31 Dec

Total Option Premiums:  $659.72

Total Dividends (including forecast ex-dividend dates through contract): $157.52

Total Stock Gain (if assigned): $35.94

Total Absolute Gain on Position: $835.16

Absolute Return on Position: 9.23%

Annualized Return on Position (held 240 days): 14.03%

HAL

Rolled out and up the 29 Aug to 35 Jan

Total Option Premiums:  $475.60

Total Dividends (including forecast ex-dividend dates through contract): $81.00

Total Stock Gain (if assigned): $182.92

Total Absolute Gain on Position: $739.52

Absolute Return on Position: 7.18%

Annualized Return on Position (held 310 days): 8.45%

MSFT

Rolled out and up the 33 Sep to 34 Jan

Total Option Premiums:  $363.20

Total Dividends (including forecast ex-dividend dates through contract): $180.00

Total Stock Gain (if assigned): $429.46

Total Absolute Gain on Position: $972.66

Absolute Return on Position: 9.97%

Annualized Return on Position (held 240 days): 15.17%

WAG

Rolled out and up the 30 Jul to 35 Jan

Total Option Premiums:  $533.19

Total Dividends (including forecast ex-dividend dates through contract): $180.00

Total Stock Gain (if assigned): $361.02

Total Absolute Gain on Position: $1,074.21

Absolute Return on Position: 10.61%

Annualized Return on Position (held 310 days): 12.50%

MAS: Not Called Early

A few weeks back I posted about my new 200 share MAS position, which I established with some covered call and dividend proceeds last month. 

In the introductory post about this position, I explained that I was trying an in the money call with an imminent ex-dividend date, anticipating that the position would be called away for the dividend claim.  If that were to happen, I would have been out of the position in less than a week.

As it turns out, the position wasn’t called, even though the MAS shares had gotten deeper into the money.  It appears I will hold the shares until the contract expires later this month.  The good part of that is that I stand to collect the dividend and it will add to the positive return on these shares.  My absolute return has increased although the annualized return went down because of the longer holding period – but I can live with that.

Here’s the analysis: 

MAS

Transactions

6/26/2012 Bought 200 shares at average share price $12.24 (total $2,447.00)
6/26/2012 Sold 2 MAS JUL 2012 $13.00 at $0.70 (total $130.49)

7/3/2012 MAS went ex-dividend, not called away ($15.00)

Net Profit:

1) Options Income:  = $130.49
2) Dividend Income: Ex-date was July 3, dividend is $0.75 ($15.00)
3) Capital Appreciation if assigned at $12.00:  -$65.00

Total Net Profit if Assigned and dividend collected:  $130.49 + $15.00 - $65.00 = $80.49
Absolute Return on Investment: ($80.49/$2,447.00) = 3.29%
Annualized Return if Assigned (20 days):  3.29%*(365/20) = 60.03%
On the ex-dividend date, MAS was in the money.   

June 2012 Results

May was a tough month, and June looked to be as bad when it started.  It turned out to be a very busy month, a profitable one, and I was able to meet my goals here in terms of returns in the account.  But the jury will remain out for a while, since the account value is still very near what it was when I started back in November – the true objective is not to just trade for trading sake but to see that metric increase on the order of from 10 to 15 percent a year.

Just as with May, June was a month with quite a few ex-dividend dates.  I collected $424.00 from dividends this month – there is only one ex-dividend date coming up for July, so that will not be a major consideration during this upcoming month. 

I tried something new this month.  I grew a bit frustrated with the process I was using for rolling out contracts – finding a contract in back months at the original strike.  Instead, with a couple of the holdings, I focused on finding new contracts in the first month (July) or one month back (August), and sometimes chose a strike price near or below my share basis.  In most cases I did try to stay near my share basis, but that wasn’t always possible. 

That means there is the possibility of seeing some of the positions get called away at a price below my basis, so I stand to recognize share price losses with these. At the moment, however, the account value is holding up because of the portfolio effect – spreading risk over 12-15 positions, so I prefer to liken this to pruning the account, sacrificing some positions so that I can take the proceeds if these calls are assigned and reinvest them in new opportunities, with a better probability of a gain.

The cash flows from last month and this have been a benefit.  I added 100 shares to my CSX position with the new cash, and I established a new 200 share position in MAS.  I chose MAS using my screening criteria, but I also worked with the philosophy I outlined above some to come up with the trade.  I bought the shares at a basis of $12.24, and sold July 12 contracts.  The total premium was around $135, and once the fees are taken out, I’ll get about half of that as a net gain on the position. 

In addition, I chose a July contract – and the shares go ex-dividend on July 3.  So, when all is settled this week, because I have an ITM position here going ex-dividend, I should see an early assignment.  As I posted on establishing the MAS position, the net will be nearly 2.7% return on a 10-day trade, which works out to nearly140% annualized.

Here are the rest of the statistics for June 2012:

Account Status:
Total Account Value, 6/30/2012 Statement:  $127,264.44, just slightly below the January 1 value of $127,606.44 (I am writing before I rec’d my statement, so this is the account value on 7/1)

Total Cash Reserve, 7/1/2012 Statement:  $6,103.44
Core Stock Positions (as of 7/1/2012):   ADM (300 shares), CSX (500 shares), DOW (200 shares), GE (500 shares), GLW (700 shares), HAL (300 shares), ITW (200 shares), MAS (200 shares), MSFT (300 shares), NOC (200 shares), SWK (100 shares), SPLS (500 shares), URS (400 shares), WAG (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of June):  $2,389.53
Capital Gains Collected (net, month of June): $0.00

Dividends Collected (recognized on the ex-date): $424.00
Interest on Cash Reserve (estimated total): $0.06
Total, Absolute Return:  $2,813.59
Absolute Return, Percentage Basis:  2.20%
Annualized Return, Percentage Basis:  26.83%

Next Month To-dos:
Although I am writing on July 1 during the big power outage, and it is not easy to look this data up, I did a quick run through of the positions on my iPhone and have only one ex-dividend date coming up, on the MAS position.  Chosing a stock for an ITM transaction with an ex-dividend date before the options expiration was part of the learning exercise on this position.    

When I closed out May, there were only two positions left with June expirations, and during the month I had rolled out all of those – and July as well.  However, in my pursuit of returns it turns out that I have established some July contracts – four positions total, as follows: 

·         MAS 12 (x2)

·         NOC 60 (x2)

·         URS 35 (x1)

·         WAG 30 (x3)

At the moment, I don’t stand to make share price gains on these – although the NOC position is breakeven. 

I am considering making a change on the WAG position, since it is near its 52-week low.  I can roll-out and up to a January 35 for an even exchange; and the gain at that strike combined with two dividend payments between now and then would result in a 12% annual return on the position, if it is assigned. This is an appealing thought, I would just leave that capital to rest in those shares.

I will probably take the hit on the URS lot.  That $3,500, combined with the proceeds from the NOC assignment, about $12,000, the $2,400 from MAS, and the $400 or so in dividend cash that will be credited to the account this month give plenty of liquidity – almost $20k! – for new positions in a market where quite a few of my favorites are at 52-week lows.

Otherwise, July will likely be a quiet month for Rescue My IRA.  I will keep you posted!