New Position: SPY

It has been a busy month for the Rescue My IRA account.  With the market rolling along at new highs, several of the July positions reached the point where it was lucrative to unwind them, so I did; as of this morning I am only holding the TXT position with a July contract.  That means I have much more cash in the account than usual, but I am loathe to reinvest at the moment until we have a few down days in a row – some consolidation that will give a read on where the market is headed next.

It’s been on my do-list to find a replacement ETF after I dumped TLT recently.  I chose SPY for this purpose.  I understand the index behind it better and it is based on S&P 500 stocks, which is what the current portfolio is predominantly comprised of.  

To further expand my learning opportunities, in addition to taking a position with an ETF, I wrote a weekly against it, choosing a July Week 4 2013 contract with a little upside in the strike price (although transaction costs will mean a net loss of about $20 on this trade).

I am very satisfied with the .62% potential return for this investment over five days (that works out to an annualized rate of 59%), but there are risks in this approach that are different from my typical buy-write approach, and that’s what I’m looking forward to learning more about here.  We’ll see how it goes, and I will post a periodic update on SPY, though not necessarily weekly if I end up with a lot of roll-outs (which I would like very much, by the way!).

Here’s the analysis on the new SPY position: 

SPY

Transactions

7/16/2013 Bought 100 shares at $16,802.90
7/16/2013 Sold 1 SPY Week 4 July 2013 $168.00 for a net of $124.74

Net Profit:

1) Options Income:  $124.74
2) Dividend Income: Next forecast ex-date is September

3) Capital Appreciation if assigned at $168:  -$20.01

Total Net Profit if Assigned:  $104.73
Absolute Return on Investment: ($104.73/$16,802.90) = 0.62%
Annualized Return if Assigned (5 days):  0.62%*(365/5) = 56.87%