New Position: CSCO

I like to get the proceeds of closed out positions reinvested as quickly as possible.  I try to maintain a small cash position that is around 5% of the balance of the account, but everything after that needs to get back to work without any downtime – if I don’t manage Rescue My IRA this way, there is a chance that I won’t hit my goal of an annualized return of 12%.

The market is hitting all time highs right now, and that adds some risks to making investment decisions in the near-term.  It is really reducing the number of stocks I can consider for new investments…today I looked at three potential positions, and settled on a trade for CSCO.  I used my trading plan’s stock selection methodology, and I’m going to trust the decision I made in this frothy market.

Adding to the interest in this trade is the fact that this stock goes ex-dividend on 10/2/2012, and I set the strike price at just about my purchase price.  There is a chance the 400 share position could be called in 15 days.  That would be great.

I still have funds available for one more trade this month, and will continue working on candidates.

Here’s the analysis:  

CSCO

Transactions

9/21/2012 Bought 400 shares at average share price $18.99 (total $7,594.28)
9/21/2012 Sold 4 CSCO Oct 2012 $19.00 at $0.38 (total $139.99)

Net Profit:

1) Options Income:  = $139.99
2) Dividend Income: Ex-date is October 2, dividend is $0.14 ($56.00)
3) Capital Appreciation if assigned at $19.00:  -$11.39

Total Net Profit if Assigned and dividend collected:  $184.60
Absolute Return on Investment: ($184.60/$7,594.00) = 2.43%
Annualized Return if Assigned (30 days):  2.43%*(365/30) = 29.57%

If the shares are called away on the ex-dividend date, the actual return goes down to 1.69%, but the annualized return is 41.21%.  We’ll see how it goes.    

GE Called Early

Even though options expire on Friday this week, September 21- tomorrow as I am writing this post, I expected that my GE position might be called away today, since it was dividend ex-date.  And I was right, so this morning I had an email saying that my 500 shares were assigned. 

I opened the position in late February – very likely during that hellish spate of travel I was on back then.  So after just more than six months, I’ve exited the position.  Along the way, I’ve collected options premiums, two dividend payments, and at the strike price I collected a price gain – so GE was a hat trick.

Not only that, when annualized, the actual return of 7.85% is 13.64%, which exceeds my annual return goal of 12.00%.

Here is the record on this position, as usual, net of fees and commissions:

GE

Shares:

2/27/2012 Bought 500 shares at an average price of $19.40, total position basis $9,702.00

9/20/2012 Sold on assignment 500 shares at $9,982.89, average share price $19.97

Total stock gain:  $280.89

Options:

Total options income:  $310.70

Dividend:

Total dividends collected:  $170.00

Net Profit:
1) Stock gains:  $280.89

2) Options income:  $310.70

3) Dividend Income: $170.00

Total Net Profit after Assignment:  $760.59
Absolute Return on Investment: ($760.59/$9,702.00) = 7.85%
Annualized Return (210 days):  7.85%*(365/210) = 13.64%

Adding to Position: DOW

With options expirations coming up this Friday, here is my final catch up post on the trading activity so far in September.  This time I’m posting about an adjustment to my DOW position, where I bought a 100 share lot and averaged my share price lower, then rolled-down the option contract I had written on the shares.

I had established my position in DOW with a 200 share purchase in June and sold June 33 calls on the shares.  I’ve had good returns on three roll-outs so far, but I have been getting anxious about liquidity lately and so I want to set up contracts that will turn over at a profit.

With fresh cash from the VIAB call assignment, I did my normal screen and DOW was one of the stocks that came up.  Seeing that I was under ceiling there (one of my rules of thumb this year is to have an average position basis at $10K, and DOW was at $6,600 or so), I decided to have a look at what I could do if I added 100 shares to this position.  The trade involves (1) adding 100 shares; (2) buying back the current Dec 33 contract; (3) selling the Dec 32 contracts; and (4) adding estimated dividend proceeds for the September ex-date.

I was able to execute the trade and meet my goal for investments – a 12% annualized return on invested capital.  

On another note, I only used a portion of the VIAB proceeds, and since dividend payments have been coming in from all the August payers, I have a little more cash reserve than I usually carry.  Since I expect that my 500 share GE position will be called either on Thursday or Friday this week (the stock goes ex-dividend on options expiry), I will combine the extra reserve with those proceeds to set up some new positions next week.

Here’s the analysis:

DOW

Basis:  300 shares costing $9,554.53, average share price $31.85

Total option premiums:  $520.21

Total dividend payments (assumes collecting the September dividend on 300 shares):  $160.00

Total stock gain at $32.00:  $27.47

Total, absolute gain on the position:  $707.68

Total, absolute return percentage $707.68/$9,554.53):  7.41%

Annualized total return percentage (held approx 220 days):  12.29%

Called Early on VIAB

The month of September has been intensive on the dividend front – I posted earlier about the eight positions that would go ex-dividend, VIAB being one of them.  When that stock’s ex-dividend date hit last week, it was in the money, and it was called.  I held it for 60 days or so and picked up an option premium and a stock gain, for an absolute return of 4.49%. 

So, no hat trick on VIAB, but here is the record on this position, as usual, net of fees and commissions:

VIAB

Shares:

7/23/2012 Bought 100 shares at an average price of $45.79, total position basis $4.579.00

Sold on assignment 100 shares at $4,682.89, average share price $46.83

Total stock gain:  $103.89

Options:

7/23/2012 STO 47 Sep 2012 total $101.74

Total options income:  $101.74

Dividend:

No dividends collected during the 50 days this position was held.

Net Profit:
1) Stock gains:  $103.89

2) Options income:  $101.74

3) Dividend Income: $0

Total Net Profit after Assignment:  $205.63
Absolute Return on Investment: $205.63/$4.579.00) = 4.49%
Annualized Return (50 days):  4.49%*(365/50) = 32.78%

I do like to be called early on my shares.

Adjusting CSX (Again!)

I’m behind on posting, so I’m planning on writing up three trades I did over the last ten days or so.  This one is a roll-out on CSX – a staple of the Rescue My IRA portfolio; tomorrow, I will post about an early call on VIAB; and then I will post about an add-on to the DOW position and an adjustment to a lower strike price.

I first bought shares of CSX back in November of last year, which makes the position my longest held in the account.  This latest roll-out has the 500 share position in Oct 22.50 calls.  With dividends, call premiums, and the predicted stock gain, not only is this a hat trick – it has been for a long time now – but also it has earned an absolute return of 16.57% since I established it last year.

Here’s the analysis:

CSX

Basis:  500 shares costing $10,861.01, average share price $21.72

Total option premiums:  $1,230.38

Total dividend payments:  $198.00

Total stock gain at $22.50:  $370.99

Total, absolute gain on the position:  $1,799.37

Total, absolute return percentage $1,799.37/$10,861.01):  16.57%

Annualized total return percentage (held approx 330 days):  18.32%

September 2012 Dividend Forecast

I like to take a look at what dividends I can expect early in the month.  Doing this serves two purposes - first, I get a sense of how much work I need to do with the covered calls to make my revenue target in the Rescue My Account, and second, I can get a sense for whether I will see some early calls on the underlying shares, where I might have a September contract written against an in-the-money position.

Last month I began trying in earnest to get a better sense of how to predict early assignments on ex-dividend dates - I've been lucky a few times before, and since the expedited returns were so good in those instances it is definitely a process I would like to figure out how to manage better and make more predictable.

Of the four "ITM" positions, GE and VIAB have September contracts - in fact, the GE ex-date is the day the September contracts expire.  So, assuming that the stock stays ITM through the term of the contract, it is very likely it will be assigned early, coincidentally, the same day as the contract would have expired anyway.

The VIAB estimate is more complicated, since the ex-date is about 10 days before options expire.  But that position is pretty far ITM compared to the dividend, so I would expect that to be assigned.

As for the other ITM position, ITW, I have a January contract, so it's not going to be called away.  I have an Oct 35 on 100 of the URS shares, so that portion of that 400 share holding could be called also.

I'll post again about some of the analysis I have been doing on this process later in the month.  We'll see how the findings hold up with these positions as well.  More to come.

August 2012 - Results

We watched all time highs come and go this month in the stock market.  Yet, there were still earnings disappointments, and inside of the trend a lot of volatility.  I exited my ADM position at a loss, but made it up for the most part by the end of the month.  So, excluding capital losses, the Rescue My IRA made just about 1% return this month, but at the end of the day, was breakeven. 

Some of my positions are trading at prices above the strike prices I have for them, and others are below.  On the whole, though, the account is in positive territory for the year.  The highlight for the month was the performance of IP, a stock I’ve traded four times now since starting the account – and once again returned a hat trick (stock gain, option premium, and dividend) during a short-term trade.  I can live with that.

Here are the rest of the statistics for August 2012:

Account Status:
Total Account Value, 8/31/2012 Statement:  $128,808.53, so once again the account is above the January 1 value of $127,606.44.

Total Cash Reserve, 8/31/2012 Statement:  $7,101.53
Core Stock Positions (as of 8/1/2012):   CAT (100 shares), CSX (500 shares), DOW (200 shares), GE (500 shares), GLW (700 shares), HAL (300 shares), HPQ (400 shares), ITW (200 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 August):  $980.95
Capital Gains Collected (net, month of August): -$1,448.16

Dividends Collected (recognized on the ex-date): $370.00
Interest on Cash Reserve (estimated total): $0.06
Total, Absolute Return:  -$97.15
Absolute Return, Percentage Basis:  -0.08%
Annualized Return, Percentage Basis:  -0.93%

Next Month To-dos:

Like August, September will be a good month for dividends.  Checking my June records, I see that DOW, GE, HAL, ITW, SPLS, SWK, and URS are all likely to pay during this month.  A quick calculation says that there will be about $400 from dividends this month, which will help ensure I meet the 1% goal. 

I have only one position with an August contract: 

·         VIAB 47 (x1)

·         CSX 22.50 (x7)

·         GE 20 (x5)

All of these positions are In-the-Money as of September1, and if they are assigned this month, I will take capital gains in the amount of just about $755.  There’s a chance of an early call on VIAB and GE, and if that happens so I don’t collect their dividends, I stand to make just about $1,000 just sitting tight.

But you know that’s not gonna happen.