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!