New Position KO and Adjusting PFE

For five weeks now we’ve had a run in the market.  My worries that we’d begin to see a little fall back at the worst or some consolidating at the best had gotten the best of me, and I had a lot more cash on the sidelines than I normally would.  I decided to have a look at some alternatives in the form of “dogs of the dow” – those high quality stocks that haven’t improved as well as the market overall has – and settled on a new position in KO.

As far as my worries go - it's true we're not lucky to have a barn-burner second half like in the first...but the signs are there for continued gains in the economy and market for the balance of the year.  So I've decided to stay with my plan of keeping 90-95% of my capital invested.  I am still working on a strategy for how to deal with a consolidating market, or even the ultimate bear market situation, but I believe there is still time for that...six months at least.

I have also been fussing over my PFE position, which has been in the money for most of the month and has an ex-dividend date of 7/31/2013.  There were times during the day on Wednesday and Thursday that I could have unwound the position by buying back the calls and selling the shares and upping my total return on the stock, but as a retail trader this is very challenging and time consuming, so I wasn’t quite able to execute.  Instead, I rolled out and up the position from a $28 Aug to a $29 Sep.

Here’s the analysis of the two positions, new position first.

KO

Transactions

Bought 300 shares at average share price $40.53 (total $12,160.00)
Sold 3 KO Sep 2013 $41.00 for a net of $181.23

Net Profit:

1) Options Income:  = $181.23
2) Dividend Income: Ex-date is before the Sep expiration, dividends $84.00
3) Capital Appreciation if assigned at $41.00:  $122.89

Total Net Profit if Assigned and dividend collected:  $388.12
Absolute Return on Investment: ($388.12/$12,160.00) = 3.19%
Annualized Return if Assigned (60 days):  3.19%*(365/60) = 19.42%

PFE

The DOW position consists of 400 shares, with a price basis of $27.58 per share.  I have been selling the $28 strikes, but rolled up and out on this transaction to a $29 strike.

Total option premiums:  -$40.03

Total dividend payments (including the forecast 31 Jul ex-dividend):  $96.00

Total stock gain at $29:  $551.89

Total, absolute gain on the position:  $607.86

Total, absolute return percentage ($607.86/$11,031.00):  5.51%

Annualized total return percentage (held approx 90 days):  22.35%