Three New Positions: UNH, MRK, CMI

With four positions called away during February, I’ve had some work to do to develop new covered call opportunities.  After adding 10 shares to AFL, which I had wanted to do since I first established that one, I did a screen for candidates.  I’ve settled on three new positions:  UNH, MRK, and CMI. 

These positions are all rated at the four or five star level by S&P, which is a forecast of a given stock’s performance.  Frequent readers will recall that I had lowered this requirement to three stars for most of 2012 – but I took a bath on three of those selections.  I decided I had added some risk to my approach with the compromise and went back to my original standard – although there are still some three star rated positions left in the portfolio, eventually they will be weeded out and I will be left with better quality among the picks. 

A second approach to reducing risk in my trading was a decision to up the amount of cash I'm holding in reserve to just about $10K.  While that is still less than 10% of the portfolio value, is is in the range of 7.5%, significantly more than the 5% I was reserving. I may revisit this as the year progresses, but with the negligible return I get on the cash returns, it seems better to put the capital to work in stock positions.

Here are the details of the three new positions:

UNH

2/21/2013 Bought 200 shares at a total of $11,125.00, basis $55.63

2/21/2013 Sold 2 UNH 57.50 Apr 2013 at a total of $196.49

Net Profit:

1) Options Income:  $196.49
2) Dividend Income: $42.50 (March ex-date)
3) Capital Appreciation if assigned at $57.50:  $357.89

Net Profit if Assigned and dividend collected:  $196.49 + $42.50 + $357.89 = $596.88
Absolute Return on Investment: ($596.88/$11,125.00) = 5.37%
Annualized Return if Assigned (60 days):  5.37%*(365/60) = 32.64%

MRK

2/21/2013 Bought 200 shares at a total of $8,521, basis $42.61

2/21/2013 Sold 2 MRK 44 Apr 2013 at a total of $72.49

Net Profit:

1) Options Income:  $72.49
2) Dividend Income: $86.00 (March ex-date)
3) Capital Appreciation if assigned at $44:  $261.89

Net Profit if Assigned and dividend collected:  $72.49 + $86.00 + $261.89 = $420.38
Absolute Return on Investment: ($420.38/$8,521.00) = 4.93%
Annualized Return if Assigned (60 days):  4.93%*(365/60) = 30.01%

CMI

2/13/2013 Bought 100 shares at a total of $11,956.00, basis $119.56

2/13/2013 Sold 1 CMI 120 Mar 2013 at a total of $255.74

Net Profit:

1) Options Income:  $255.74
2) Dividend Income: $50 (February 20 ex-date)
3) Capital Appreciation if assigned at $120:  $26.89

Net Profit if Assigned and dividend collected:  $255.74 + $50.00 + $26.89 = $332.63
Absolute Return on Investment: ($332.63/$11,956.00) = 2.78%
Annualized Return if Assigned (30 days):  2.78%*(365/30) = 33.85%