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.