Like many of my generational colleagues, the baby boomers, I've found that my best intentions about saving for retirement aren't always meeting the mark. In 2011, I took some old 401(k) accounts and combined them into a self-directed IRA with Scottrade, and established a strategy of using covered calls to stabilize and enhance my returns. Rescue My IRA chronicles the progress of my IRA rescue using this approach.
Monday, December 17, 2012
Called Away Early and a Roll-out: ITW
After the ugly experience with
my HPQ position earlier in the month - and the relief at having it called away, even at a loss - I have been watching the other two
positions that had ex-dividend dates this month and that I’d set up with
December expiries: ITW and SWK. The SWK position has a $72.50 strike, and the
stock is near-the-money – having floated up into and out of in-the-money status over the
course of the last two months. In the
case of ITW, as I was preparing my monthly forecast, the stock was in-the-money
already, given the $60.00 strike I’d set for that contract.
I expected the ITW shares to be called last
Friday when they went ex-dividend, and sure enough I had the email from
Scottrade on Friday morning – except that only 100 shares of the 200 share
position had been called away.
price was adjusted and then dropped some more after the dividend calculation,
so I decided to close out the remaining December option and roll the remaining
100 shares out to January. Even though I will
now pay a commission on the second transaction, I was able to add about $50 net
to the total return on this position, in addition to the $38 in dividends I
stand to collect for one lot of the shares.
In the analysis that follows, the calculations
for the position assume being called away in January – and I have exceeded my
goal of a 12 percent annualized return, using the full original basis. If the position isn’t called away, of course
I will have an adjustment post up very soon.
Until then, here is the analysis:
March 2012 Bought 200
shares at an average price of $56.37, total position basis $11,274.00
12/14/2012 Sold on
assignment 100 shares at $5,982.89, average share price $59.83 – the
calculations below assume that I will have a similar transaction next month.
Total dividends collected: $262.00
1) Stock gains: $691.78
3) Dividend Income: $262.00
Total Net Profit after
Absolute Return on Investment: ($1,365.64/$11,274.00) = 12.11%
Annualized Return (330 days): 12.11%*(365/330) = 13.40%