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!