Unwinding TXT

Even with the holiday shortened trading week, there has been a lot of activity in the Rescue My IRA account so far.  In fact, yesterday alone, I did four roll-outs, netting about $400 in cash from the premiums.  Because of the holiday and how busy I’ve been so far, I’ll just list those four symbols today so I can get on with the topic of this post, the recent unwinding of my TXT position:  PSA, INTC, F and FB. 

The trading week started out tentatively, but we’ve ended up setting new highs for three consecutive days.  The articles I am reading are evenly split between their anticipation of a traditionally great month during December and a looming correction in the range of 10-20%.  Since I can be as wrong as any of the experts, I am going to hold off  on new positions during the month and let the contracts I have in place take care of themselves – there are still four December positions, even with the four roll-outs listed above.

One action I did take was to unwind my TXT position – there was an odd situation with the covered call premium once the delta reached 1.00, and I decided to close it out to get some cash off the table.  I did this even though TXT will go ex-dividend early next month.  The dividend is only $2.00; I decided that getting the cash in was more prudent than waiting to see what the market is going to do this month.

This was the second time I’ve taken a bite of TXT, it’s an S&P 5 star stock.  I held the previous position for 50 days; it also exceeded my goal of a 12% annualized return – that time it achieved a 24.83% annualized.  Even so, comparing the actual returns between the two positions, this one did a little better – 3.89% vs. 3.40%.

So here is the record on the TXT position, net of fees and commissions – it was an excellent performer, once again:

TXT

Shares:

This was a 300 share position an average price of $29.30, total position basis $8,791.00

Sold on unwind at $9,742.83

Total stock gain:  $951.83

Options:

Total options income:   -$610.03 (due to unwind transaction)

Dividend:

Total dividends collected:  $0.00

Net Profit:
Total Net Profit after Unwinding:  $341.80
Absolute Return on Investment: ($341.80/$8,791.00) = 3.89%
Annualized Return (75 days):  3.89%*(365/75) = 18.92%

Rolling Out CAT and FB

After I post today about two roll-outs – CAT and FB – I’ll be caught up on the month’s trading.  We’re headed into the holiday weekend and I’ll be drafting my monthly results to go up over the weekend.  Of course the trading week will still have some opportunities and I will seek them out, posting if there are any more trades.

In the meantime, here’s the analysis of the CAT and FB positions.

CAT

This is a 100 share position established in August 2012; basis is $8,716.99 or $87.17 per share. This transaction rolled out to a $85.00 Feb 2014 covered call.  I've held the position for more than a year - it's very much a dog of the DOW and just sort of limps along, albeit with an overall positive return on the position.

Total option premiums:  $908.88

Total dividend payments (including dividends through the current contract):  $336.00

Total stock gain at $85.00:  -$234.17

Total, absolute gain on the position:  $1,010.71

Total, absolute return percentage ($1,010.71/$8,716.99):  11.59%

Annualized total return percentage (held approx 540 days):  7.84%

FB

Since I had a good experience with a short-term trade on FB last month, I decided to try again…even though I knew lightning probably wouldn’t strike twice.  This is a 100 share position with a basis of $5,186.99 or $51.87 per share.

Total option premiums:  $213.21

Total dividend payments (no dividend on this stock – a rule breaker!):  $0.00

Total stock gain at $52.50:  $45.90

Total, absolute gain on the position:  $259.11

Total, absolute return percentage ($259.11/$5,186.99):  5.00%

Annualized total return percentage (held 47 days):  38.79%

Rolling out F and IP

We’re in the middle of a great month here in November 2013 – plenty of new highs getting strung along so far this week.  That’s put most of my positions, which are all S&P 500 stocks, in the money, or close to it.  I used the trading action of the last two weeks to do some adjustments on the shares that hadn’t made it to that status:  F and IP.

For F, the position is right at the target of 12% annualized return, the goal for Rescue My IRA positions, while IP is performing slightly better than that.  Here’s the analysis of the two positions.

F

F is a 500 share position started in August, bought in two lots, with a basis of $8,616.00 and average share price of $17.23.  I have been selling covered calls at $17.00, $17.50, and $18.00 on the position.

Total option premiums:  $288.19

Total dividend payments:  $50.00

Total stock gain at $17:  -$133.11

Total, absolute gain on the position:  $205.08

Total, absolute return percentage ($205.08/$8,616.00):  2.38%

Annualized total return percentage (held approx 75 days):  11.58%

IP

This is a 200 share position I established in June.  My current share basis is $47.93, and I am selling strikes between $47.00 and$49.00 – the current contract is a January 2014 $47.00.

Total option premiums:  $788.35

Total dividend payments:  $180.00

Total stock gain at $47:  -$202.11

Total, absolute gain on the position:  $766.24

Total, absolute return percentage ($766.24/$9,585.00):  7.99%

Annualized total return percentage (held 180 days):  16.21%

New Covered Call Position: MRK

Once again, I found that I had enough cash on the sidelines to set up another buy-write covered call position.  I used the same criteria for this I have in the past: 

• S&P 500 Index standing (starts with 500 high-quality companies).
• S&P rated four or five stocks (narrows down to about 200 companies).
• Annual dividend of 2 to 5 percent
• Ability to develop a position that yields $100 or more in call premium

By this time, I am down to four or five symbols that I can balance against other companies already in the portfolio.  I then screen for earnings announcements coming up (avoiding those), and ex-dividend dates in the upcoming quarter.  That’s how I ended up at MRK for the new position last week.

Here’s the analysis, or position plan, if you will – all values are net of commissions and fee: 

MRK

Transactions

Bought 200 shares at average share price $47.87 (total $9,573.00)
Sold 2 MRK Dec 2013 $48 for a net of $116.48

Net Profit:

1) Options Income:  = $116.48
2) Dividend Income: Ex-date is in December, dividend is $0.48 ($48.00)
3) Capital Appreciation if assigned at $48.00: $9.89

Total Net Profit if Assigned and dividend collected:  $222.37
Absolute Return on Investment: ($222.37/$9,573.00) = 2.32%
Annualized Return if Assigned (30 days):  2.32%*(365/30) = 28.26%

Another New Position: FB

After setting up the new WFC position, I still had some of the proceeds left from unwinding AFL and PFE earlier this week, and I wanted to put a good amount of it back to work in the market.  I usually do a screen for this purpose, and while I was working through the list, I found myself distracted and did some random quotes on shares as they came to mind.  I thought I might check out FB to see where it was trading at; I’ve been amused by the track of that stock since it was first listed and traded so poorly the first few months.

Since S&P has FB as a 3-star stock right now and it doesn’t pay dividends, this company would not normally make it onto a screen for Rescue My IRA.  However, I found that I could make a decent trade with an in the money weekly and I pulled the trigger.  On an annualized basis, this will probably be my best ever trade…but since I broke some of my selection rules, I have to remember the bon mot and not get too carried away –

“Bulls make money, bears make money, pigs get slaughtered…”

Here’s the analysis of the FB position.

FB

Transactions

Bought 100 shares at average share price $48.97 (total $4,896.99)
Sold 1 FB wk 1 Nov 2013 $48.50 for a net of $288.74

Net Profit:

1) Options Income:  = $288.74
2) Dividend Income: FB does not pay a dividend
3) Capital Appreciation if assigned at $48.50:  -$64.10

Total Net Profit if Assigned and dividend collected:  $224.64
Absolute Return on Investment: ($224.64/$4,896.99) = 4.59%
Annualized Return if Assigned (3 days):  4.56%*(365/3) = 558.12%

You read that right – annualized return would be over 500% if I could duplicate the trade over and over.  LOL – if only!

New Position: WFC

After unwinding AFL and PFE, I wanted to get a good share of the proceeds back into the market.  With the market hitting new highs a few days during the week, I was worried about buying at a top; one of my criteria is to look for an annual dividend yield percentage of from 2 to 5% - for the most part, this has served as protection from the risk of buying at a price that is too high.

After an initial screen, I had four or five good choices.  I realized that the sector not currently included in my portfolio was a financial – so I chose WFC for the new position. The covered call is out of the money at the moment, so I expect to have a chance of collecting the dividend here.

Here’s the analysis.

WFC

Transactions

Bought 300 shares at average share price $42.78 (total $12,835.00)
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 is before November expiration, dividend is $30.00 ($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%

Unwinding AFL and PFE

Once the delta on one of my covered calls reaches 1.0, there is a good chance that unwinding it will allow me to capture most of the profit budgeted for that position and free up the capital to use in a new one.  The only thing to come to terms with is the tradeoff between the covered call premiums that have been collected and the additional stock price gains – they offset each other.  So this week AFL and PFE reached this situation, and I took action to close them out.

I’ve already gotten part of the capital back into the market – a new position with WFC, and then a rule breaker with FB – but those will be topics of new posts in the next few days.

Meanwhile, the positions earned a 19.24% and 17.86% annualized return, respectively - well above my goal of a 12% annualized return.  

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

AFL

Shares:

200 shares at an average price of $51.62, total position basis $10,324.00

Sold on unwind 200 shares at $13,288.76, average share price $66.44

Total stock gain:  $1,964.76

Options:

Total options income (net, includes the unwinding costs):   -$1,615.95

Dividend:

Total dividends collected:  $175.00

Net Profit:
Total Net Profit after Unwinding:  $1,523.81
Absolute Return on Investment: ($1,523.81/$10,324.00) = 14.76%
Annualized Return (280 days):  14,76%*(365/280) = 19.24%

PFE

Shares:

Bought 400 shares, position basis $11,031.00, average price $27.56

Sold on unwind 400 shares at $12,272.78

Total stock gain:  $1,271.78

Options:

Total options income (includes unwinding costs):   -$636.04

Dividend:

Total dividends collected:  $96.00

Net Profit:
Total Net Profit after Unwinding:  $701.74
Absolute Return on Investment: ($701.74/$11,031.00) = 6.36%
Annualized Return (130 days):  6.36%*(365/130) = 17.86%