October 2013 - Monthly Results

I’m looking back on October 2013 and finding it wasn’t nearly as bad as it could be, I didn’t make my 1% return goal for the month, but the Rescue My Account is in excellent position to close out what has been a very good year.  In October, we started with the government shut down and an unsettled market that went into pause/consolidate mode for most of the first two weeks of the month.  Somewhere along the way, the fed made a decision to continue its activities to protect the feeble growth we’ve been seeing, and then the government reopened.  

Since then, Rescue My IRA moved on up past $150K. 

“Soapbox Warning!”

That’s a far cry from how things could have turned out, and from where I thought we might be this fall, which was in a 10% or so consolidation.  That certainly could still be in the cards – these Republican government activities such as the Sequester and futile wrong-headed attacks on Obamacare are holding the economy back from the growth we could be seeing.

Consider what happened after the shutdowns in 1995 (again, a Republican tactic at the time, although both parties have been responsible for shutdowns historically) – while the economy wasn’t problem-free back then, we saw robust growth and prosperity for four or five years afterwards.  There’s no reason to think that wouldn’t be possible today – and it is a good reason to rush Boehner, Cantor, Cruz, and their ilk, out of office.

…Okay, I’ll put away the soapbox again, and get back to my review of the Rescue My IRA investing activities for the month.  From a cash flow perspective, there isn’t much to speak of, as between covered call premiums, dividends, and capital gains I only had $148.36 in cash income, which is an annualized 1.36% return. 

For comparison purposes, I consider the cash returns every month as a proxy for what my retirement budget might be when I convert Rescue My IRA to a source of income. I’ll set aside an amount as a cash reserve at the beginning of each year and budget that as my income from this account while investing the rest.  That’s why I have set 1% monthly as a goal – whatever the account value is when the time comes, that amount is the maximum I will plan to spend on a monthly basis from this source. 

Meanwhile, the market bounced back and that is what gave the account value room to grow, even though the cash flows weren’t up to snuff. In any case, it was a busy month, one when I had about 10 adjustments to covered call positions.  October was light in dividends – only $60 recorded when the CAT position went ex-dividend on October 18.  Finally, I unwound four positions, with gains from DVN, SPY, and TRV offsetting the loss on TGT, and resulting in about $112 in net profits.  

A final action item to report on for October is a follow-up on one of the to-do’s I listed in my September monthly report:  repairing the PSA position.  As I wrote last month, I had been selling $165 strikes against my $164 basis in this position, but I compromised with a roll-down to $160, and the position was in-the-money at that level.  The position recovered and busted on through $165, but I was able to make the adjustment and repair my PSA contract, so I can forecast an annualized return of almost 13% on it, based on its December expiration.

By the way, I’m still happy with the covered calls strategy, but I want to use cash secured puts in the future for more flexibility. To do this, I will have to upgrade my Scottrade account soon to allow those trades.

Here is a summary of my Rescue My IRA statistics for October 2013, based on last Friday’s close, October 25, 2013.     

Account Status:

·         Total Account Value, 10/25/2013 Market Close:  $152,733.17 (vs. September close of $148,452.86)

·         Total Cash Reserve, 10/25/2013 Market Close:  $14,617.14

·         Core Stock Positions (as of 10/25/2013):   AFL (200 shares), CAT (100 shares), CMI (100 shares), DIS (200 shares), F (200 shares), INTC (400 shares), IP (200 shares), KO (400 shares), PFE (400 shares), PSA (100 shares), TXT (300 shares), WFC (300 shares)

Performance Metrics:

Option Premiums Collected (net, month of October):  -$23.70 (-0.02 %)

Capital Gains Collected (net, month of October):  $111.91 (0.08%)

Dividends Collected (recognized on the ex-date): $60.00 (0.05%)
Interest on Cash Reserve (estimated): $0.15
Total, Absolute Return:  $148.36
Absolute Return, Percentage Basis:  0.11%
Annualized Return, Percentage Basis:  1.36%

Next Month To-dos:

November looks to be an excellent month for dividends, including two positions (AFL and PFE, more on them below) that are in-the-money and are likely to be called away on the ex-dividend date.  Not counting those ITM positions, I’m forecasting $474.50, or a 0.36% return, from dividends on the following six positions:  CMI, INTC, IP, F, KO, and WFC. 

I should note that my CMI and INTC positions have in-the-money December contracts, so they could be called away on their ex-dividend dates as well.  In which case, I’ll have some additional capital gains over and above what I am forecasting from AFL and PFE.    

My final activities in this account during the October trading period were to adjust three positions – CAT, F, and PFE – by rolling them out (see yesterday’s post).  At this time there are three contracts with November expirations:  AFL, PFE, and WFC.  As I’ve mentioned, AFL and PFE are ITM and are likely to be called away, while WFC is out-of-the-money, so I’m likely to roll it out to December after the ex-dividend date next week. 

I’m forecasting decent capital gains from both of these positions – totaling $2,211, or a 1.66% return to the account.  Since both have ex-dividend dates before the November options expiration date, I’ll watch closely for an opportunity to unwind them for a little extra, because I cannot expect to receive their dividends. 

Between the dividends and capital gains, the cash flow forecast shows about $2,700 coming in, or better than 2% for the month.  That makes up for the slow October…and I’ll look forward to seeing what else I can do to keep things rolling in a positive direction during the course of the month. 

The holidays are nearly upon us.  Here’s to a great season.  Happy investing!

Adjustments to End the Month: CAT, INTC, and IP

Closing out the activities for the month in Rescue My IRA, I have three adjustments to post on.  As I have in the past, I will do the monthly update as of last Friday’s market close – I’ll put that post up tomorrow morning; then I have a couple of trades I did in the conventional account that will be the topic of a post early next week.

The adjustments in Rescue My IRA consisted of roll-outs of November contracts for CAT, INTC, and IP.  For CAT, since there is an ex-dividend date in either December or January (last year they moved it up for tax purposes), I rolled out to January, but for the other positions I just rolled a month into November.  This still leaves me with three contracts in November, which also should be a good month for dividends, but I’ll leave that for the next post.

In the meantime, here’s the analysis of the three adjusted positions.

CAT

This company reported earnings this week, and while it has been dragging along most of the year, the stock price took a significant hit. I took advantage of the dip to roll out and roll up the current contract from an $87.50 strike to a $90 strike.  If I am assigned on this contract the performance will average out to slightly below my goal of a 12% annualized return; this one is forecast at 11.38%, which is close, and I can live with that.

The CAR position is 100 shares, established at a basis of $87.17 in August 2012. 

Total option premiums:  $784.39

Total dividend payments (including the forecast ex-dividend for Dec/Jan):  $336.00

Total stock gain at $90:  $265.83

Total, absolute gain on the position:  $1,386.22

Total, absolute return percentage ($1,386.22/$8,716.99):  15.90%

Annualized total return percentage (held approx 510 days):  11.38%

INTC

This is a 400 share position I established earlier in October, basis is $9,471.00 or $23.68 per share. I rolled the $24 strike from November to December with this trade. The stock is close to the money, so it could be called away on the November 5 ex-dividend date.

Total option premiums:  $167.96

Total dividend payments (counting November ex-date):  $90.00

Total stock gain at $24:  $111.89

Total, absolute gain on the position:  $369.85

Total, absolute return percentage ($369.85/$9,471.00):  3.91%

Annualized total return percentage (held 60 days):  23.76%

IP

I opened the current IP position back in May, after discovering that S&P had promoted it to a 4-star rated stock – I’ve held past positions when it was 3-star stock and have done well with it.  This is a 200 share position I established with a basis of $9,585.00 or $47.93 per share. I have sold covered calls with a strike as high as $49 with this position, but the current strike is $47, and I have gone as low as $46. 

Total option premiums:  $753.37

Total dividend payments (counting November ex-date):  $180.00

Total stock loss at $47:  -$202.11

Total, absolute gain on the position:  $731.26

Total, absolute return percentage ($731.26/$9,585.00):  7.63%

Annualized total return percentage (held 180 days):  15.47%

A Second New Position: WFC

The second position I opened this week is WFC.  In the past I have stayed away from banks, insurance, REITs, and other financial oriented companies, but over the last year or so I decided to incorporate a few of them into the portfolio, as long as they met my selection criteria.  The WFC position has a November covered call written against it, and there is the potential for a dividend payment in the strategy as well.

Here are the details of the WFC trade:

WFC

Transactions

10/21/2013 Bought 300 shares at average share price $42.78 (total $12,835.00)
10/21/2013 Sold 3 WFC Nov 2013 $43.00 for a net of $130.24

Net Profit:

1) Options Income:  = $130.24
2) Dividend Income: Ex-date in November, dividend is $0.30 ($90.00)
3) Capital Appreciation if assigned at $43.00:  $47.89

Total Net Profit if Assigned and dividend collected:  $268.13
Absolute Return on Investment: ($268.13/$12,835.00) = 2.09%
Annualized Return if Assigned (30 days):  2.09%*(365/30) = 25.42%

New Position: DIS

There was some cash on the sidelines after unwinding a couple of October positions, so I decided to put it to work.  I bought shares and sold covered calls in DIS and WFC – I’ll post the results of these transactions today and tomorrow. 

I’ve held DIS in the Rescue My IRA account before, and it has been profitable for me.  This stock pays an annual dividend, and I figure that as long as the economy is trundling along in a growth mode, it should hold its own through the ex-dividend date in December, which is the contract I selected.  I anticipate that the stock will probably go up in value as the annual dividend date approaches, and that my shares will be called away.

The call premiums for these two positions puts the account in the black for the month on a cash flow basis – meanwhile, the market has surprisingly taken care of itself, and the account value is up a bit as well.  I’ll put those results together next week.

Here’s the analysis:

DIS

Transactions

10/21/2013 Bought 200 shares at average share price $67.56 (total $13,511.00)
10/21/2013 Sold 2 DIS Dec 2013 $70.00 for a net of $186.48

Net Profit:

1) Options Income:  = $186.48
2) Dividend Income: Ex-date is Dec, dividend is $0.75 ($150.00 for 200 shares)
3) Capital Appreciation if assigned at $70.00:  $471.89

Total Net Profit if Assigned and dividend collected:  $808.37
Absolute Return on Investment: ($808.37/$13,511.00) = 5.98%
Annualized Return if Assigned (60 days):  5.98%*(365/60) = 36.40%

For sensitivity analysis, without the dividend payment, the return is $658.37, which works out to a 4.87% absolute return, or 29.64% annualized.

Unwinding to Close DVN, SPY, and TRV

This evening’s post will have me caught up on my October trades so far.  Besides unwinding my TGT position, which I posted about earlier, I unwound three of my October contracts:  DVN, SPY, and TRV – except in these cases, I closed out all three positions for a gain that exceeded my goal of an annualized 12%return.

It turns out that DVN and TRV were hat tricks, as well – the positions earned income for me from share gains, covered call premiums, and dividends, all three sources.  TRV only barely missed the mark.

Here is the record on the three positions, net of fees and commissions:

DVN

Shares:

Bought 200 shares at an average price of $60.70, total position basis $12,014.80

Sold on unwind 200 shares at $12,230.78, average share price $61.15

Total stock gain:  $215.98

Options:

Total options income:   $279.50

Dividend:

Total dividends collected:  $88.00

Net Profit:
Total Net Profit after Unwinding:  $707.98
Absolute Return on Investment: ($707.98/$12,014.80) = 5.89%
Annualized Return (150 days):  5.89%*(365/150) = 14.34%

SPY

Shares:

Bought 100 shares, position basis $16,845.57

Sold on unwind 100 shares at $17,280.72

Total stock gain:  $435.15

Options:

Total options income:   $117.21

Dividend:

Total dividends collected:  $84.00

Net Profit:
Total Net Profit after Unwinding:  $636.36
Absolute Return on Investment: ($636.36/$16,845.57) = 3.78%
Annualized Return (83 days):  3.78%*(365/83) = 16.61%

TRV

Shares:

Bought 100 shares, position basis $8,210.99

Sold on unwind 100 shares at $8,454.86

Total stock gain:  $243.87

Options:

Total options income:   -$33.02

(The unwind transaction involves buying to close the final covered call contract, and that can mean the income from premiums is minimized – but it is offset by the additional stock gain.)

Dividends:

Total dividends collected:  $50.00

Net Profit:
Total Net Profit after Unwinding:  $260.85
Absolute Return on Investment: ($260.85/$8,210.99) = 3.18%
Annualized Return (65 days):  3.18%*(365/65) = 17.84%

Rolling out CAT (Again)

Here’s another catch-up post.  I have been diligently managing my CAT position since opening it in August 2012 – it is definitely a “Dog of the DOW” this year…it’s not meeting my goal of a 12% annual return, but it’s not too far off.  I’ll continue holding it through the current November contract, at least.

Here’s the analysis of the position.

CAT

The CAT position consists of 100 shares with a basis of $87.17 per share.  Since opening the position in August 2012, I’ve sold covered calls at strikes ranging from $85 to $95; the current contract is November $87.50.

Total option premiums:  $724.40

Total dividend payments (including the forecast October ex-dividend):  $276.00

Total stock gain at $87.50:  $15.83

Total, absolute gain on the position:  $1,016.23

Total, absolute return percentage ($1,016.23/$8,716.99):  11.66%

Annualized total return percentage (held approx 450 days):  9.46%

Taking the Hit on TGT

I use a portfolio approach, typically holding 12 to 16 positions in the Rescue My IRA account at any given time.  By doing this, I can manage a losing position here and there, because it will usually be offset soon by a winner, and by the steady performance of most stocks that will yield my goal of 12% per year. 

My TGT position was one of the losers this year – I like the company and the stores, I’ve held it successfully in the past, and it gets a high S&P rating.  But the position I started in August went into a tailspin almost immediately, and I saw that I was rolling it down on a monthly basis.  Earlier this week I cut my losses, unwinding the covered call contract and then selling the shares. 

I’ll show a loss on this one, but I expect to offset it fairly quickly with a new position.

Here’s the analysis:

TGT

Shares

August 2013 – Bought 100 shares for $7,079.99.

Per share basis of 100 shares is $70.80.

Yields

Total Option Premiums:  $137.96

Total Dividends:  $43.00

Total Stock Loss:  -$783.09

Total Absolute Gain/Loss on the position:  -$60.13

So my actual loss on this position works out to -8.50%.  I’m glad I pulled the trigger before I was down 10%. 

Adding Shares and Rolling Out F

It has been very busy in the Rescue My IRA account this month – I’m behind on my posts here so I will begin catching up today.  The posts coming up will include executing a couple of unwind transactions and making a couple of position adjustments as I have attempted to trim my sails to navigate the turbulent sideways market during the ongoing “shutdown” crisis in Washington.  

Nevertheless, this account notched a new high book value of over $150K for a few days, and has settled in this morning at above $149K.

Today’s post will be about adding shares to the F position, and I will work on getting the other two or three posts up before options expiration on Friday.  At the moment, I only have one October contract left on SPY – that one could end up being called or not, all depending on Congress’s actions in the next couple of days.

I opened the F position last month with 200 shares – I had a trade in this stock a few months ago and did well with it, and since I had a little money left on the sidelines, I put it back to work at a share basis of $17.49, selling a November 18 contract.  I added 300 shares yesterday, dropping my share basis to $17.23, and rolled everything out to a December 18 contract.  The trade puts me in position for a triple play, since the ex-dividend date is coming up later this month, and I will have collected call premiums and a forecast share gain by the time the trade ends.

Here’s the analysis: 

Total option premiums:  $204.70

Total dividend payments (including the forecast October ex-dividend):  $50.00

Total stock gain at $18:  $366.89

Total, absolute gain on the position:  $621.59

Total, absolute return percentage ($621.59/$8,616.00):  7.21%

Annualized total return percentage (held approx 90 days): 29.26%

Two Adjustments: PSA and TXT

When I wrote my monthly summary for September, I noticed that I had made an error with my management of the PSA position.  I decided that I would try and do something about that to correct what was then a poorly performing position – I had to look into the back months to do a roll-out and roll-up combination – that trade will be the first I summarize here.  With the repair trade the position will earn an estimated return of almost 13%, which is in line with my goals for individual positions in Rescue My IRA.

I also rolled out the new TXT position I’d established last month.  The stock is down a little, very possibly because of the government shutdown, so I decided to do an adjustment from October calls to December calls.  Even by adding 60 days to the holding period, this position will earned an estimated 17% if it is called away in December.

Here’s the analysis of the two positions.

PSA

The position consists of 100 shares at a basis of $163.52 per share.  This trade involved a roll-up from a $160 strike to a $165 strike, while simultaneously rolling out from October 2013 to December 2013.

Total option premiums:  $477.21

Total dividend payments (including the forecast December ex-dividend):  $250.00

Total stock gain at $165:  $130.89

Total, absolute gain on the position:  $858.10

Total, absolute return percentage ($858.10/$16,352.00):  5.25%

Annualized total return percentage (held approx 150 days):  12.77%

TXT

This is a 300 share position with a share basis of $29.30, total cost of 8,791.00.  I am selling $29strikes, and the trade here rolled the contract out from October to December. 

Total option premiums:  $480.71

Total dividend payments (counting ex-dates through the contract term):  $6.00

Total stock loss at $29:  ($108.11)

Total, absolute gain on the position:  $378.61

Total, absolute return percentage ($378.61/$8,791.00):  4.31%

Annualized total return percentage (held 90 days):  17.47%