Monday, March 25, 2013

New Position: JPM

Frequent readers of Rescue My IRA know that I don’t like to have funds sit idle for very long once positions are assigned and there is a cash balance in the account that is much more than a standard 5% reserve.  Once the remainder of the URS position was called away last week, there was about $15,000 to deal with, so I went to work to develop a new trade.
Once again, I used a stock screen from Scottrade to get a few candidate opportunities out on the table.  I use my trading plan for this purpose:  I like S&P 500 shares because they are readily liquid; I choose only S&P four or five star rated stocks – this reduces my universe for selecting shares to less than 100; I look for dividend yields between 2 and 6 percent annually, paid quarterly – this generally eliminates some utility limited partnerships, REITs, and some financial stocks that have higher yields; and I will look for ex-dividend dates in the upcoming quarter.  From the initial list, I further refine the choice by comparing what’s identified here with what I already have in my portfolio, to make sure that I am not concentrating too much capital in a given industry and to eliminate any holding that are already in the account.
This generally will leave me with two or three choices.  From there I have a simple proforma template that I use to estimate the returns of a given trade – I seek a 12% annualized return based on an initial holding period of three months or so.  This time the screen led me to select JPM for my next investment, and I bought 300 shares at $49.07 – the basis of this new position is $14,722.00.
That is the second largest holding I have placed since I started the Rescue My IRA account.  Interestingly enough, the largest position was URS, the position I am replacing.  That’s just a matter of coincidence, I guess, for now.  The positions will begin to get larger over time as the account continues to grow, and I maintain my diversification goal of 12-16 positions.
Here are the details of the new position:

Bought 300 shares at a total of $14,722.00, share price basis $49.07

Estimated net profit:

1) Sold to open April 50 2013 covered call (x3):  $187.24
2) Dividend Income: $90.00 (April 3 ex-date, so there is the potential of an early call)
3) Capital Appreciation if assigned at $50.00:  $260.89

Total Net Profit if assigned and dividend collected:  $187.24 + $90.00 + $260.89 = $538.13
Absolute Return on Investment: ($538.13/$14,722.00) = 3.66%
Annualized Return if Assigned (25 days):  3.66%*(365/25) = 53.37%

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