New Position: F

As I’ve written before, I work hard to ensure that 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.  Between the option proceeds and dividends I collect in a given month I sometimes find I have enough money to establish a small position designed for a short-term trade, as I have done with MAS a couple of times this year. 

I found myself with about $4K available at the end of September and went through a couple of days’ work to find a trade I liked, finally settling on a 400 share position on F, which also goes ex-dividend on November 1.  I set up an in-the-money November call on this with an eye on that ex-date, I’ll take the early call or ride it out to options expiration and make a good return either way. 

Here’s the analysis: 

F

Transactions

9/27/2012 Bought 400 shares at average share price $10.06 (total $4,022.50)
9/27/2012 Sold 4 F Oct 2012 $10.00 for $147.99)

Net Profit:

1) Options Income:  = $147.99
2) Dividend Income: Ex-date is November 1, dividend is $0.05 ($20.00)
3) Capital Appreciation if assigned at $10.00:  -$39.61

Total Net Profit if Assigned and dividend collected:  $128.38
Absolute Return on Investment: ($128.38/$4,022.50) = 3.19%
Annualized Return if Assigned (45 days):  3.19%*(365/45) = 25.89%

If the shares are called away on the ex-dividend date, the actual return goes down to 2.69%, but the annualized return is 21.89%, exceeding my goal of a 12% annualized return.  We’ll see how it goes.