January 2013 Results

As I write my monthly report for January 2013, it appears to me that we are finally turning the corner in the economy.  There has been steady – albeit slow – improvement over the last three or four years, but it appears that the market has finally embraced the turnaround, and that has meant good news for investors.  There is a bit of a dark cloud due to the potential for sequestration and how that lopsided approach to Congressional budgeting may impact the economy, but it would be nice to see a run for the next six months to a year, wouldn’t it?

 

January was yet another month I learned something about using the covered call approach that I have adopted for the Rescue My IRA account. Because of the rally that took place early, I was able to roll-out quite a few of my positions, and in some cases, I also rolled them up to higher strike prices.  Since there was an impact to my cash flow, I evaluated each of these trades to consider whether the cost for the “buy to close” transaction was less than the total of the “sell to open” premium and the opportunity for a stock gain I was adding. 

If I were to sum it up, using that formula, my costs were approximately $800, while the net of the stock gains is around $4,500.  I don’t like the short term negative cash flow that resulted very much, but if everything comes out as planned, these will be nice gains.  Since there is no guarantee of that, I’m just going to have to watch the action and manage my trading while the scenarios play out. 

I completed these trades at the risk of chasing the stock price up – and that gives some perspective, since I’ve chased stock prices down before.  If a trade felt stretched in this regard, I didn’t sell the call, and there is only about $500 in the potential gains that I would categorize as a chase.  In another case, when I first acquired shares, the breakeven was at the new strike price – was it a chase to sell calls at a lower strike at the interim? 

I’ll consider the experience a lesson for managing the account – there are always improvements that can be made and some of them will make their way into my trading plan.  Fortunately, in any case, my account value continues to rise despite the mistakes and hard knocks of all of this. 

All in all, January was a light month for dividends – the ones I recognized are a few that got away from me in December, shares where the companies declared out of cycle due to tax implications.  That accounts for $156.00 of the cash flow this month.

The January rally has been good for the Rescue My IRA account – the account value grew to $138,735 this month, an increase of nearly $6,000 over the December 31, 2012 statement value.  For now, these are paper gains until the shares are called, but I have to say that I feel like we’re finally moving in the right direction.

Finally, here are the statistics for January 2013, as of the market close on 1/31/2013:

Account Status:

·         Total Account Value, 1/31/2013 Market Close:  $138,735.11 (vs. December close of $132,850.69)

·         Total Cash Reserve, 1/31/2013 Market Close:  $6,641.11

·         Core Stock Positions (as of 1/31/2013):   AFL (100 shares), CAT (100 shares), CSCO (500 shares), CSX (500 shares), DOW (300 shares), GLW (700 shares), HAL (300 shares), ITW (100 shares), LNC(400 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):  -$805.66
Capital Gains Collected (net, month of October): $0.00

Dividends Collected (recognized on the ex-date): $156.00
Interest on Cash Reserve (total): $0.08
Total, Absolute Return:  -$649.58
Absolute Return, Percentage Basis:  Negative
Annualized Return, Percentage Basis:  Negative

Next Month To-dos:

February will be a pretty good month for dividends; I can forecast about $320 in total payments due to ex-dates coming up for AFL, CSX, GLW, MSFT, and WAG. 

There are four positions with options coming up in February:  CSCO (500 shares at $21), HAL (300 shares at $35), LNC (400 shares at $26), and SWK (100 shares at $75).  At the time of this writing, only the CSCO position is out of the money, and just barely, so – so February has the potential for being a good month for stock gains.  If all, or most, of the calls are assigned, there will also be a lot of new positions to write about – and income from new call premiums.

We’ll see how it goes.  If I figure out how to think about roll-ups and roll-downs more coherently, I’ll post that here.

Until then, bueno suerte, amigos!