Two Adjustments: Rolling out HPQ and URS

I’ve made a couple of adjustments in the last week that I need to report here – roll-outs, where I closed current positions and sold new positions at the same strike price in later months. 

In one case, HPQ, there’s a lesson learned.  This was a position that worked on paper and met my criteria in every other way; however when I made the investment I failed to consider that there was an upcoming earnings announcement.  After they reported a miss, the stock gapped down. 

I still like the stock, and the premiums for the stock at my strike are pretty good, so I am continuing to hold the position, and generating income with option premiums.

The other adjustment was also a roll-out, for the URS position. I pushed the contract expiry out to January 2013.  While this now means I have a lot of positions that will be held for an additional 120 to 150 days, I do have four positions expiring in September and a couple in October and November – so there will be plenty of trades. 

Here’s a summary of these two adjustments:

HPQ

Rolled out the 20 Sep to 20 Nov

Total Option Premiums:  $316.98

Total Dividends (including forecast ex-dividend dates through contract): $52.80

Total Stock Gain (if assigned): $63.89

Total Absolute Gain on Position: $433.67

Absolute Return on Position: 5.48%

Annualized Return on Position (held 90 days): 22.21%

URS

Rolled out and up the 40 Oct to 40 Jan

Total Option Premiums:  $1,462.43

Total Dividends (including forecast ex-dividend dates through contract): $165.00

Total Stock Gain (if assigned): -$344.18

Total Absolute Gain on Position: $1,283.25

Absolute Return on Position: 8.11%

Annualized Return on Position (held 240 days): 12.33%

I should not that my original position in URS is 400 shares.  I have a 35 Oct contract on 100 of the shares – and the returns estimated above include them.  However, despite my poor judgment on that part of the position, the estimated annualized return still meets my goals for the Rescue My IRA account.

Making the List!

A pleasant surprise today that the Rescue My IRA blog has made a list of options trading blogs.

We're at #94...and here's the synopsis:

A blog that chronicles the options trades and other strategies the author is currently utilizing to prepare for retirement.

You can find a link here:

http://commodityhq.com/2012/top-100-options-trading-blogs/

New Position: HPQ

With the proceeds from the assigned IP position hitting my account this morning, I did a screen for a replacement position.  I still have some ground to make up after taking the capital loss on ADM at the beginning of the month, so I decided to look for a stock trading in the $10 to $25 range, so that I could write multiple contracts and up my option premium income.

The details of the screen were:

• Share price between $10 and $25
• S&P 500 stock
• Ex-dividend next month
• S&P 3 stars or higher
• Within 35% of its 52-week low

There were six candidates, including BBY and HPQ.  Because of the stock turmoil BBY is going through with leadership changes, I decided HPQ would be the choice.  While I was completing this research, I saw that CSCO could be a similar play – but after further review, I found there was more upside on HPQ’s share price.  And so I decided to purchase a 400 share position.

Here’s the analysis: 

HPQ

Transactions

8/20/2012 Bought 400 shares at average share price $19.80 (total $7,919.00)
8/20/2012 Sold 4HPQ $20 Sep 2012 calls at $231.99)

9/10/2012 HPQ  ex-dividend date, if not called away early that is $0.132 per share

Net Profit:

1) Options Income:  $231.99
2) Dividend Income, if held at ex-date:  $52.80
3) Capital Appreciation if assigned at $20.00:  $63.89

Total Net Profit if Assigned and dividend collected:  $231.99 + $52.80 + $63.89 = $348.68
Absolute Return on Investment: ($248.68/$7,919.00) = 4.40%

If the stock is called on the ex-date, the position will still earn more than 3.00% for the 30 days.
Annualized Return if Assigned (20 days):  4.40%*(365/30) = 53.47%
HPQ was straddling an in-the-money situation for part of the day.   

Another Hat Trick with IP

My IP position was called away at options expiration last Friday.  I established this position last month, after looking ahead for stocks that would go ex-dividend during the week of monthly options expirations and calculating for an early assignment.  That didn’t happen, and as a result, I scored a hat trick with this latest IP position. 

As it turns out, this is the third time I’ve taken a position in IP, and all three times I scored the hat trick, with option premiums, dividends, and stock gains.  The previous times were in November 2011, when I first opened the Rescue My IRA account, and again at the beginning of 2012. 

So I like this stock – I think I first learned about it from one of the traders on the Yahoo Covered Calls board.

Here’s the history of this most recent position:

IP – 300 Shares, average basis $32.02, 33 Aug 2012 assigned

Option Premiums (total):  $140.23

Dividends Collected (ex-dividend 8/13/2012:  $78.75

Stock Gain:  $275.89

Total:  $494.87

Absolute return 5.15%

Annualized return (30 days) 62.67%

New Position: CAT

My last post was about the loss I took while pruning the account of the unprofitable ADM position.  I’ve rolled those funds into a new position with CAT – shares I did well with earlier in the year.  The stock had taken quite a roll back from where it was when I was long on it, so I felt like this was a good entry price point.  I hope the shares will serve me well in recovering from the ADM trade.

Here’s the analysis: 

CAT

Transactions

8/8/2012 Bought 100 shares at share price $87.17 (total $8,716.99)
8/8/2012 Sold 1 CAT 90 NOV 2012 at $377.74

CAT has a dividend of approximately $0.52, going ex-dividend in October.  This stock has performed so strongly that there is a good chance of early assignment in October, but we shall see.

Estimated Net Profit:

1) Options Income:  = $377.74
2) Dividend Income: Ex-date in Oct 3, dividend is $0.52 ($52.00)
3) Capital Appreciation if assigned at $90.00:  $265.83

Total Net Profit if Assigned and dividend collected:  $377.74 + $53.00 + $265.83 = $695.57
Absolute Return on Investment: ($695.57/$8,716.99) = 7.98%
Annualized Return if Assigned (100 days):  7.98%*(365/100) = 29.13%

Taking a loss on ADM - and Moving on!

It seems like the weather has taken a toll on many of the agribusiness stocks, including ADM, which I had a position in.  It took quite the tumble and I don’t expect it will come back for some time.  So I bailed.

It’s the second position I’ve decided to prune under the Rescue My IRA account approach.  The other was ACM…the symbol shares so much in common maybe it shouldn’t be a surprise that they performed so similarly!

Here’s the history:

ACM – 300 Shares, basis $30.82, cost $9,246.88

Option Premiums (total):  $597.97

Dividends Collected:  $52.50

Stock Loss:  -$1,724.05

Total:  -$1,073.58

Of course, the absolute return and the annualized return are negative.  I won’t even bother to report them.  I am just lucky that so much of the capital loss was offset by the premiums and dividend – and that the market has the value of the account up for the year despite taking the loss.

I have rolled these funds into a new CAT position.  I’ll follow up with a post on that soon.

August Dividend Forecast

In the monthly forecast section of my July results post, I mentioned that I expected August to be a busy month for collecting dividends.  I went back and did a quick analysis of my positions that had declared for the month of August and found that there are six stocks that will go ex-dividend this month - as shown in the table to the right.

Since I write covered calls on every position I hold, I did a second bit of analysis to look at whether the position is In-the-Money (ITM) or Out-of-the-Money (OTM).  I found that I have 3 ITMs and 3 OTMs.

Normally, I expect an ITM position to be called away on the ex-date, as long at the stock is trading at the stock price plus the dividend amount.  Last month, I saw an exception to this on the MAS position - that one went ex-dividend early in the month of July and was ITM by more than the dividend amount, but the stock wasn't called away.  It was still a good trade when the option was assigned anyway a few months later.

Now back to my analysis of the August ex-dates.  For the IP position, where I have an August contract in place, I designed the trade so that an early call was possible, and it looks like that will be the case, assuming the stock continues to stay above $33.27 or so.

The other ITM positions - CSX and WAG, are a little more difficult to predict.  In the case of CSX, it is entirely likely the stock will be called away this time if it stays ITM through the ex-dividend date.  I'll be fine with that - as I have written many times, CSX is a train that keeps on rolling.

WAG, on the other hand, is harder to predict.  It is comfortably ITM, but the option is for January, so there are still 180 days to expiration.  There is a lot of time value in the option contract, so holders are likely to let the option run rather than to call the stock for the dividend.  It is better for me if this were called early, but it's more likely that I will collect the dividend - glad to, by the way - and my money will rest in the position for a few more months.

Of course, if any of these positions are called away during August, I will write a closing post on them.

July 2012 Results

After so much trading in June, I decided that I would try a slower, more deliberate pace during July.  While the month was profitable, my results did not quite generate the 1% monthly I have set as a goal, but they nearly did, falling just short of $1,000.  It’s not bad while the market is still moving sideways. 

The highlight for the month was the performance of the little 200 share position in MAS that I established back in June.  I collected the dividend on that stock and it was assigned in July, as expected.  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.  As I posted on establishing the MAS position, the net was nearly 2.7% return, which works out to nearly 60% annualized on a 25-day trade.   

Here are the rest of the statistics for July 2012:

Account Status:
Total Account Value, 7/31/2012 Statement:  $128,715.04, so once again the account is above the January 1 value of $127,606.44

Total Cash Reserve, 7/31/2012 Statement:  $7,653.47
Core Stock Positions (as of 8/1/2012):   ADM (300 shares), CSX (500 shares), DOW (200 shares), GE (500 shares), GLW (700 shares), HAL (300 shares), ITW (200 shares), IP (300 shares), MSFT (300 shares), SWK (100 shares), SPLS (500 shares), URS (400 shares), VIAB (100 shares), WAG (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of June):  $1,014.30
Capital Gains Collected (net, month of June): -$68.38

Dividends Collected (recognized on the ex-date): $15.00
Interest on Cash Reserve (estimated total): $0.06
Total, Absolute Return:  $960.98
Absolute Return, Percentage Basis:  0.75%
Annualized Return, Percentage Basis:  9.16%

Next Month To-dos:

August should be a good month for dividends.  We’re still having some internet technical difficulties at the house, but checking my May records, I see that CSX, GLW, MSFT, and WAG are all likely to pay during August, and the new IP position does as well.  A quick calculation says that there will be about $300 from dividends this month, which will help ensure I meet the 1% goal.  September will be a similarly productive month for dividends.     

I have only one position with an August contract: 

·         IP 33 (x3)

If the IP position is assigned, it will be a three-bagger, since I will collect the option premium, a dividend (ex-date 8/13), and a stock gain.  That will be a nice change of pace from the trading for trading sake I’ve had to do at times this year. 

Since the internet problems are going on, I’ll keep this post short this month.  Hope to have everything restored within a week, so I can get back to my normal pace of posting.