June 2013 Results

We’ve had some headwinds in the market these last few weeks – a couple of worries about how fast interest rates had risen, some comments from the Fed about what lays ahead – all of these gave us for straight days of decline.  Those who are inclined to do technical analysis reported that we tested some key areas of support; we could be headed for a bear market, or maybe not.

During the depths of those four days I was second guessing my decision to stay in the market at the 95% level.  Sure enough though, as soon as those thoughts started circling around the old noodle, the market surprised us and we’ve just had three straight days of gains, getting back most of what we’d lost last week.

I think we will see this kind of summer action all the way through Labor Day, so buckle your seat belts.

At the end of it all Rescue My IRA had a good month.  I learned a new tool – unwinding an in-the-money position – and took some capital gains from my GE position early in the month.  I collected some dividends and then turned a profit on call premiums, and made my goal of 1% returns for the month.

Here is a summary of the Rescue My IRA statistics for June 2013, as of the 6/27/2013 market close:

Account Status:

·         Total Account Value, 6/27/2013 Market Close:  $142,516.16 (down from May’s close of $144,085.05, but still up vs. the April close of $142,267.90)

·         Total Cash Reserve, 6/27/2013 Market Close:  $8,351.52

·         Core Stock Positions (as of 6/27/2013):   AFL (200 shares), CAT (100 shares), CMI (100 shares), COP (200 shares), CSCO (500 shares), DVN (200 shares), IP (200 shares), JPM (300 shares), MSFT (400 shares), SPLS (700 shares), TLT (100 shares), TXT (300 shares), WIN (500 shares)

Performance Metrics:

• Option Premiums Collected (net, month of June):  $319.51
• Capital Gains Collected (net, month of June): $1,208.68
• Dividends Collected (recognized on the ex-date): $286.51
• Interest on Cash Reserve (estimated): $0.08
• Total, Absolute Return:  $1,814.78
• Absolute Return, Percentage Basis:  1.47%
• Annualized Return, Percentage Basis:  16.62%

Next Month To-dos:

July is a very light month for dividends; while I am forecasting $244.00 forecast from four positions:  TLT, CAT, CSCO, and JPM.  The CSCO and JPM positions are in-the-money and stand a good chance to be called away early, so my dividends may end up less than $100 for the month.  The stock gains on those positions will more than make up for that – and I may even take the opportunity to unwind some underperformers. 

I have five June contracts:  CSCO and JPM, mentioned above, are in the money, as is MSFT.  My TLT and TXT positions are out of the money – but only barely so, so they could well be called away too when all is said and done.

As I’ve written over the last few months, I decided not to “sell in May and go away,” and I’m staying 95% in until the summer is over…and I am always looking for good bargains.  It looks like I will have some cash freeing up soon to go bargain hunting during the ups and downs that I think we’re going to continue to see.

I was pretty slow to post this month - it has been totally hectic at work, where it is government budgeting season.  We've had some late nights putting together program briefs.  I will try to do better.

So until next month – have a good one.  

New Positions: TXT and WIN

After unwinding the GE position earlier in the month, I sought to put the proceeds back to work quickly, with the goal of earning at least $35 in the new position.  I ended up establishing that position in TXT, but I did not invest the entire proceeds at that time – the remainder actually went into a second position in WIN. 

While we have seen a little market chop here recently, both of these positions are S&P 5-star choices.  I am happy to hold them for the long-term if necessary, but we’ll see how that goes. In fact, I rolled the original June position out already to July on the TXT shares, and my opening contract on WIN is August.  

In the meantime, here’s the analysis: 

TXT

Transactions

6/13/2013 Bought 300 shares at average share price $27.08 (total $8,131.00)
6/13/2013 Sold then rolled out 3 TXT June 2013 $27.00 for a net of $318.62

Net Profit:

1) Options Income:  = $318.62
2) Dividend Income: Ex-date was June 12, dividend is $0.02 ($6.00)
3) Capital Appreciation if assigned at $27.00:  -$48.11

Total Net Profit if Assigned and dividend collected:  $276.51
Absolute Return on Investment: ($276.51/$8,131.00) = 3.40%
Annualized Return if Assigned (50 days):  3.40%*(365/50) = 24.83%

WIN

Transactions

6/21/2013 Bought 500 shares at average share price $7.92 (total $3,962.00)
6/24/2013 Sold 5 WIN Aug 2013 8 at $0.23 (total $101.74)

Net Profit:

1) Options Income:  = $101.74
2) Dividend Income: Ex-date is 6/26, $126.00
3) Capital Appreciation if assigned at $8:  $20.89

Total Net Profit if Assigned and dividend collected:  $247.63
Absolute Return on Investment: ($247.63/$3,962.00) = 6.25%
Annualized Return if Assigned (60 days):  6.25*(365/60) = 38.02%

Unwinding GE

As frequent readers will recall, since the beginning of 2013 I’ve used the market’s bullish run as a way to do some roll-ups, buying to close in-the-money calls and selling new calls at higher strike prices.  I’ve probably done this four or five times so far – I’ve been satisfied with those trades, which appear to trade my call premiums for stock gains, but I have been thinking that there must be a more efficient method than this to capture the stock gains.

I came across the term “unwind” as one approach.  The transaction consists of buying to close and then selling the shares outright – meaning there is not a residual contract on the shares.  You are free to reinvest profits immediately, and to perhaps increase the potential gains that you’re capturing from the stock rise.

My GE June position was in this status – the stock had appreciated above the strike price, and the delta had reached 1.00, so being called away was very likely.  I also noticed that although there were two weeks left to options expiration, there wasn’t any time value left in the premium – it was solely the difference between the current share price and the option strike. 

I did a what-if analysis, as shown in the chart below (the left hand side shows how I track all of the positions in Rescue My IRA).  What I found was that by unwinding the position – buying to close and then selling the shares at market, my return was only $35 less than if I waited the remaining two weeks for the option to expire. 

As long as I could get the money back to work in a trade that would net more than $35, I would be ahead.  I found a new position and collected $160 in premiums, as a matter of fact – so I did better than I would have done by waiting it out. 

So there’s a new tool in the tool kit.  I’ll be keeping an eye on all of my in-the-money positions for opportunities to unwind them in the future.

Rolling out IP

As I did a couple of months ago, I established positions with the same stock in both my Rescue My IRA account and my conventional trading account.  The stock I chose was IP – it’s one that has served well in Rescue My IRA, since I have traded it four or five times. 

My per share basis in both accounts is just less than $48 and I am selling $48 strikes, rolling them monthly.  Last week I rolled both out from June contracts to July – here’s the analysis on the positions.

IP – Rescue My IRA position

The IP position consists of 200 shares.  My basis is $47.93 per share.  I am selling 48 strikes and rolling them monthly; this transaction rolled out June options to July. 

Total option premiums:  $309.46

Total dividend payments:  $60.00

Total stock gain at $48:  -$2.11

Total, absolute gain on the position:  $367.35

Total, absolute return percentage ($367.35/$9,585.00):  3.83%

Annualized total return percentage (held approx 60 days):  23.31%

IP – Conventional Trading Account Position

This is a 100 share position.  My share basis is $47.75, and I am selling $48 strikes – this transaction also rolled out a June contract to July. 

Total option premiums:  $128.23

Total dividend payments:  $30.00

Total stock gain at $48:  $7.24

Total, absolute gain on the position:  $165.47

Total, absolute return percentage ($165.47/$4,775.65):  3.46%

Annualized total return percentage (held 60 days):  21.08%

June Roll-outs: COP and DVN

The market is moving sideways here in the early part of June, so I took a look at the covered calls I had written on the COP and DVN positions.  The deltas on those June contracts had declined, so it was looking unlikely that they would be called away at expiration – plus, the option premium on the current contracts had fallen into my roll-out zone, trading in the mid 20 cents range.  So I rolled them out. 

In the case of DVN, where I sold a September contract, I locked in the shares for the ex-dividend date next month, and I am likely in line for the September dividend as well, unless the shares are called away early then.  For COP, a May ex-date had already passed, so August is the next scheduled dividend, and I have an August contract.  We’ll see how these shares go.

In the meantime, here’s the analysis of the two positions.

COP

The COP position consists of 200 shares.  My basis is $64.18 per share, and the stock is trading below there.  I am selling $65 strikes, this transaction rolled out June options to August. 

Total option premiums:  $187.48

Total dividend payments (including the forecast August ex-dividend):  $264.00

Total stock gain at $65:  $147.89

Total, absolute gain on the position:  $599.37

Total, absolute return percentage ($599.37/$12,835.00):  4.67%

Annualized total return percentage (held approx 90 days):  18.94%

DVN

This is a 200 share position I established last month.  My current share basis is $60.07, and I am selling $60 strikes – I rolled out June contracts to September in this transaction.

Total option premiums:  $683.48

Total dividend payments (counting September ex-dates):  $88.00

Total stock gain at $60:  -$31.91

Total, absolute gain on the position:  $739.57

Total, absolute return percentage ($739.57/$12,014.80):  6.16%

Annualized total return percentage (held 120 days):  18.72%