Saturday, December 8, 2012
Taking the Hit on HPQ
HPQ had a new CEO, and because it met my investment criteria at the time – August 2012, I took the plunge and bought 400 shares. After some initial bad earning news, I added 100 shares with the hopes of leveraging my basis down, and I decided to adjust my covered call strategy on the position to focus on cash yields. Finally, last month, there was even more bad news – so I decided to give up.'
Counted by themselves, the returns I earned from call premiums and dividends are almost 9 percent, which annualized meets my goals on returns. However, I’ve had the position called away this week on the ex-dividend day, so I have taken a sizable stock loss on HPQ.
That smarts, but I figure that is something that will happen from time to time – it is one of three instances this year where I’ve decided I could do better reinvesting the capital than waiting for a comeback, the others being ACM and ADM.
I plan on a series of 2012 recap posts later this month, one of which will feature the ACM, ADM, and HPQ trades. Until then, here’s the story of the HPQ position.
8/20/2012 – Bought 400 shares for $7,919.00.
9/25/2012 – Bought 100 shares at $1,697.99.
Share basis of 500 shares is $19.23
Total Option Premiums: $802.16
Total Dividends: $52.80
Total Stock Loss: -$3,634.10
Total Absolute Gain/Loss on the position: -$2,779.14
So my actual loss on this position works out to a -28.90 percent return. As I noted above, the returns from option premiums and dividends alone worked out to 9.00 percent or so, enough to meet my goals.
It’s just an example of picking a bad stock. Fortunately the portfolio model provides coverage for these periodic losses!