Two New Positions: F and GE

After the April expirations, I had about $27K ready to reinvest.  I like to get the proceeds of closed out positions reinvested as quickly as possible while maintaining a small cash position, around 5% of the balance of the account.  My sense of things is that if I don’t manage Rescue My IRA this way, with a maximum of my funds working for me all the time, there is a chance that I won’t hit my goal of an annualized return of 12%.

The market continues to scrape along at all time highs right now, adding some risks to making investment decisions in the near-term.  I used my trading plan’s stock selection methodology, and only found two positions to establish with the proceeds:  GE and F.  I’ll carry some extra cash - about $10K - for now, and continue to look for a good stock to put it in.

The F position is similar to the one I wrote about earlier this week, where I established a 500 share position in my conventional trading account.  Like that one, I expect the May 13 covered calls to be assigned on ex-dividend May 1.

Here’s the analysis for the new positions: 

GE

Transactions

Bought 500 shares at average share price $21.62 (total $10,642.00)
Sold 5 GE $22.00 June 2013 for a total of $141.74

Net Profit:

1) Options Income:  = $141.74
2) Dividend Income: Ex-date is June, dividend is $0.19, total of $95.00
3) Capital Appreciation if assigned at $22.00:  $340.89

Total Net Profit if Assigned and dividend collected:  $577.63
Absolute Return on Investment: ($577.63/$10,642.00) = 5.43%
Annualized Return if Assigned (60 days):  5.43%*(365/60) = 33.02%

If the market continues on this run through June, the shares have a good chance of being called away on the ex-dividend date.  In that case, the actual return goes down to 4.54%.

F

Bought 500 shares at average share price $12.94, total $6,472.00
Sold 5 F $13.00 May 2013 for a total of $131.74

Net Profit:

1) Options Income:  = $131.74
2) Dividend Income: Ex-date is 5/1, $50.00
3) Capital Appreciation if assigned at $13:  $10.89

Total Net Profit if Assigned and dividend collected:  $192.63
Absolute Return on Investment: ($192.63/$6,472.00) = 2.98%
Annualized Return if Assigned (30 days):  2.98*(365/30) = 36.21%

If the shares are assigned, I will miss out on the dividend, dropping my absolute return by $50.  The absolute return on a percentage basis would be 2.20% - when annualized, that 10 day holding period works out to a return of 80.44%!