Adjusting Two Mainstays: GLW and CSX

GLW and CSX are two positions that I have held since the start of the Rescue My IRA account – I have 700 and 500 shares in them respectively.  Last week I rolled them out to May 2013.  These transactions did result in their staying on target for my 12% annualized return, although extending so far into the back months does mean I am probably at the end of the run for them, so I would like to see them hit the strike price as these covered calls hit expiration. 

Here’s a summary of the positions as of these most recent trades:

GLW

The most recent roll-out to 13 May 2013 covered calls is the tenth contract I have written on these shares.  In looking over the history of these transactions, I have also written covered calls at the 12 and 14 strike.  It would be good to get 14 for the shares, but for now I am holding with a strike price of 13.

Rolled out the 13 Feb to 13 May

Basis of 700 share position:  $9,241.88, or $13.20 per share

Total Option Premiums:  $1,451.59

Total Dividends:  $276.00

Total Stock Gain (if assigned): -$159.88

Total Absolute Gain on Position: $1,567.71

Absolute Return on Position: 16.96%

On an annualized basis, after holding these shares for 510 days, the return works out to 12.14%

CSX

This is a 500 share position that epitomizes what I am trying to do with this account.  I want to earn returns from option premiums, dividends, and stock price gains.  I’ve been able to do that quite frequently with short-term trades, but here is one I have held for 510 days, since the beginning of the account.  And the shares continue to perform for me.

Rolled out the 22.50 Feb to 22.50 May

Basis of 500 share position:  $10,861.01, or $21.72 per share

Total Option Premiums:  $1,479.74

Total Dividends: $338.00

Total Stock Gain (if assigned): $370.99

Total Absolute Gain on Position: $2,188.73

Absolute Return on Position: 20.15%

Annualized Return on Position (held 510 days): 14.42%

I’ll continue to manage this one, but I do wish that they would all work out as well as CSX has.

November Adjustments, Continued: SPLS, URS, and DOW

Last week, I mentioned that I was going to focus on managing Rescue My IRA according to my trading plan as a way to keep earning returns through what looks to be a volatile market despite – or in spite of – a tepid expansion.  Making things a bit more complex are the ongoing budget crisis in this country.

So this post will be about three more positions I’ve made adjustments on this month.  I still have a couple to report on and will get that post up soon.  Meanwhile, with the proceeds from these options and the F call assignment I need to find a new trade to complete the month.

Here’s a summary:

SPLS

Here is a stock that gets a great S&P rating, but has been trading out of the money since I established the position last February.  My solution has been to roll down and out the 500 share position to continue to produce a yield.  I’ll manage carefully to ensure a break-even or better result when I finally allow the stock to be called away.

Rolled out the 13 Dec to 12.50 Jan

Total Option Premiums:  $762.56

Total Dividends:  $259.00

Total Stock Gain (if assigned): -$1,555.60

Total Absolute Gain on Position: -534.04

Absolute Return on Position: Negative

In order to get this position to breakeven or better, I will need to sell the shares at $13 or better.  Assuming I will have one more adjustment before I terminate the trade, this seems doable.

URS

In contrast to SPLS, here is a 400 share position that has generated better than 10% between the call premiums and dividends that I have collected on it.  Plus, at the 40 strike there is a small stock gain, so this trade is going as you’d hope they all would.

Rolled out the 40 Jan to 40 April

Total Option Premiums:  $1,477.91

Total Dividends (including forecast ex-dividend dates through contract): $240.00

Total Stock Gain (if assigned): $155.82

Total Absolute Gain on Position: $1,873.73

Absolute Return on Position: 11.84%

Annualized Return on Position (held 330 days): 13.09%

So this position will meet my 12% goal, even if assigned under the current contract.

DOW

Here is a 300 share position that is working out according to plan.  I sold the 32 Dec in order to have a call premium that met my requirements for individual transactions (I like to net at least $100 where ever I can).  The tradeoff at that strike would have been a small stock loss but I fixed that with this trade.

Rolled out and up the 32 Dec to 33 Mar

Total Option Premiums:  $632.69

Total Dividends (including forecast ex-dividend dates through contract): $256.00

Total Stock Gain (if assigned): $327.47

Total Absolute Gain on Position: $1,216.16

Absolute Return on Position: 12.73%

Annualized Return on Position (held 270 days): 17.21%

As with URS, this position meets my goal of 12% return if assigned under this current contract.

Called Away on F

This is one of those cases where I wish I could put more trades together like this more often, but my little position in Ford, symbol “F,” has been called away during the November expiration.  This was a 60-day trade, and I set it up as basically an in-the-money trade – the average share price was just a little more than $10, and I sold November 10 calls when I established the position with some proceeds from call assignments back in September.

Basically, I was trading for the option premium and a dividend, at first with the hope of an early assignment – which should have happened but didn’t – because I would have turned the profit a few weeks early.  As it happened, because the call wasn’t assigned, I was able to collect the dividend on these shares as well. 

All totaled, I netted $128.38 on the trade, which had a basis of $4,022.50.  That’s 3.19 percent that I collected over a 60 day investment, working out to an annualized return – remember I calculate this simply as a metric to help evaluate trades – of 19.42%, which exceeds my goal of a 12% return.

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

F

Shares:

9/18/2012 Bought 400 shares at an average price of $10.06, total position basis $4,022.50.

11/16/2012 Sold on assignment 400 shares at $3,982.89, average share price $9.96.

Total stock gain(net of commissions):  -$39.61

Options:

9/18/2012 Sold to open 4 10 Nov 2012 contracts, net $147.99

Total options income:  $147.99

Dividend:

Total dividends collected:  $20.00

Net Profit:
1) Stock gains:  -$39.61

2) Options income:  $147.99

3) Dividend Income: $20.00

Total Net Profit after Assignment:  $128.38
Absolute Return on Investment: ($128.38/$4,022.50) = 3.19%
Annualized Return (60 days):  3.19%*(365/60) = 19.42%

Some Adjustments for a Sideways Market: MSFT, HPQ, SWK

So far this month, the market has been fairly tepid.  At least one of the big market events has happened now that President Obama was re-elected, but the bigger potential impact looms with the “fiscal cliff” hanging out there unresolved. 

So while the economy does seem to be finding its footing ever so slowly, this dark cloud looms on the horizon, so we’re trading more or less sideways.  A quick resolution of this turmoil is in order and I hope our politicians are up to it.

Meanwhile, I’ve been taking advantage of the action to roll-out a few positions.  I’ll post a few of them today and then get the rest of them posted in a few days.

Here are the first three: 

MSFT

Rolled out and up the Jan 32.50 to Feb 33

Total Option Premiums:  $419.68

Total Dividends (including forecast ex-dividend dates through contract): $180.00

Total Stock Gain (if assigned): $129.46

Total Absolute Gain on Position: $729.14

Absolute Return on Position: 7.48%

Annualized Return on Position (held 270 days): 10.11%

The MSFT position is marginally underperforming at present.  However, I can accept this transaction if it was to come to pass – it’s very close to my objective of 12% annual on invested capital.

HPQ

Rolled down the 17 Jan to 16 Jan

Total Option Premiums:  $605.18

Total Dividends (including forecast ex-dividend dates through contract): $105.60

Total Stock Gain (if assigned): $0

Total Absolute Gain on Position: $710.78

Absolute Return on Position: 7.39%

Annualized Return on Position (held 140 days): 19.27%

Note: if this position were assigned at 16, I will take a loss on the position.  However, I monitor these positions closely on a daily basis.  If HPQ begins a recovery I will take quick action to roll the stock up to protect myself from a capital loss.

SWK

Rolled out and down the 75 Nov to 72.50 Dec

Total Option Premiums:  $580.22

Total Dividends (including forecast ex-dividend dates through contract): $82.00

Total Stock Gain (if assigned): $-58.68

Total Absolute Gain on Position: $603.54

Absolute Return on Position: 8.28%

Annualized Return on Position (held 240 days): 12.59%

October 2012 Results

As I expected it to be, October was a challenging month during the account.  The market has been bouncing along at high values, but we have all of these reasons to doubt that the current levels are sustainable.  I found it difficult to complete new profitable trades, although I was able to collect some dividends and did generate some cash from buying and selling covered calls.  But there were no call assignments and no capital gains – all in all, it was just a breakeven month. 

Here are the statistics for October 2012:

Account Status:

·         Total Account Value, 11/1/2012 Statement:  $127,568.73, a value that is close to the January 1 value of $127,606.44.

·         Total Cash Reserve, 11/1/2012 Statement:  $6,605.73 (Fascinating!  Exactly $3.00 more than last month!)

·         Core Stock Positions (as of 11/1/2012):   CAT (100 shares), CSCO (400 shares), CSX (500 shares), DOW (300 shares), F (400 shares), GLW (700 shares), HAL (300 shares), HPQ (400 shares), ITW (200 shares), MSFT (300 shares), SWK (100 shares), SPLS (700 shares), URS (400 shares), WAG (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of October):  -$90.84
Capital Gains Collected (net, month of October): $0.00

Dividends Collected (recognized on the ex-date): $128.00
Interest on Cash Reserve (total): $0.08
Total, Absolute Return:  $37.24
Absolute Return, Percentage Basis:  0.03%
Annualized Return, Percentage Basis:  0.36%

Next Month To-dos:

As a dividend month, November will similar to August, which was a good month.  Five positions will go ex-dividend this month:  CSX, GLW, HAL, MSFT and WAG.  I will collect $311.50 from dividends, meaning I need to make up $900 or so to make my 1% return goal.

As of this writing there is only one position with a November contract – 400 shares of F at a 10 strike, a position that is in the money.  It won’t earn a gain if the stock is called away, I designed the trade to make money basically at the purchase price based on the option premium and dividend that I have already collected.  So it looks like I’ve got my work cut out for me on the covered call buying and selling side.

I’ve taken advantage of down market days over the last two weeks and closed some of the options – so at some point during the month I hope to be able to sell new contracts and thus will begin to generate some income. Plus, assuming the F shares are called away, I’ll have about $4,000 to make a new position with…

I’ll keep you posted.