December 2013 Results

During December 2013, the trading activities in Rescue My IRA were essentially breakeven, but the market value of the account grew by nearly $2K, to more than $154K.  We’ll count the month – and the year, for that matter – a success.    I unwound five positions for a stock gain, an activity that typically trades option premiums for the stock profits, but ends up with a little extra profit; I also went ahead and cut my losses on a position.

This year, there weren’t as many companies trying to beat the clock on tax law changes, so dividend activity was limited to one position, although there was the potential for dividends from three companies when the month started – two were in the money as the ex-dividend date approached, so I unwound those.  The single dividend I collected was $140, and January doesn’t look to be much better right now since the four stocks with ex-dividend dates next month are all in the money by good margins right now. 

There is always the chance of a correction and consolidation at any given moment, and while I am ignoring statistics and probability when I say this, the successive record closes we’ve been enjoying during 2013 make me feel like any day now might be a good time for it.  To mitigate potential risks, I’ve decided to hold back some cash in anticipation of this possibility and closed the month with about a third of the account value sitting on the sidelines. 

I intend to do a series of retrospective posts on my 2013 trading year next week.  One thing I’m happy to report and that bears repeating from last month is that the covered call strategy has made Rescue My IRA whole again and then some over the last two years.  When I combined three legacy 401(k) accounts into a Merrill Lynch IRA (and left management to one of their consultants) the account value was $144K, before it declined to around $100K.

Here is a summary of my Rescue My IRA statistics for December 2013, based on last Tuesday’s close, December 31, 2013.     

Account Status:

·         Total Account Value, 12/31/2013 Market Close:  $154,520.65 (vs. November close of $152,928.16)

·         Total Cash Reserve, 12/31/2013 Market Close:  $50,800.85

·         Core Stock Positions (as of 12/31/2013):   ABT (300 shares), CAT (100 shares), FB (200 shares), INTC (400 shares), IP (200 shares), JPM (200 shares), KO (400 shares), PSA (100 shares), SO (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of December):  -$2,352.30 (-1.77 %)

Capital Gains Collected (net, month of December):  $2,413.78 (1.82%)

Dividends Collected (recognized on the ex-date): $140.00 (0.11%)
Interest on Cash Reserve (estimated): $0.11
Total, Absolute Return:  $201.59
Absolute Return, Percentage Basis:  0.15%
Annualized Return, Percentage Basis:  1.85%

Next Month To-dos:

Four positions go ex-dividend during January 2014, but all of them are in the money at the time I am writing this report – and they are all ITM by more than the dividend payment, making it slightly more likely I will see them called away.  The stocks are ABT, CAT, JPM, and SO, and the estimated dividends are $354.25 if I collect them.  The ex-date on JPM is Thursday, 2 January – so I may find an assignment message in my inbox from the get go!

Last month I reported that I am going to slow down the activities in this account for a short while so that I can do some research on augmenting the covered call strategy.  One result of this was the decision to make a trade on FB – a hot stock that does not meet the usual criteria I have applied to the account.  I will post a little more on this topic next week during the 2013 wrap up posts.

Here we are at New Year’s Eve – here’s to a great 2014, readers! 

Conventional Account Trades - FB and SO

I have a small conventional trading account at Scottrade – I have been using more or less the same trading philosophy with it as I do in Rescue My IRA, which is why I post about it here sometimes.  My goals with the conventional account are the same as with the IRA: to achieve a 12% annual rate of return, and to compound that return until the funds are needed.

I just added a little bit of cash from my year-end bonus to the account, and since I had 100% of the cash sitting on the sidelines, I decided to pick up two positions – FB and SO – which I am also trading in Rescue My IRA.

Here’s the position plan for both – all values are net of commissions and fee: 

FB

Transactions

Bought 100 shares at average share price $57.01 (total $5,701.00)
Sold 1 FB Jan 2014 $57.50 for a net of $163.74

Net Profit:

1) Options Income:  = $163.74
2) Dividend Income: No dividends on this stock
3) Capital Appreciation if assigned at $57.50:  $31.89

Total Net Profit if Assigned and dividend collected:  $195.63
Absolute Return on Investment: ($195.63/$5,701.00) = 3.43%
Annualized Return if Assigned (25 days):  3.43%*(365/25) = 50.10%

SO

Transactions

Bought 100 shares at average share price $40.82 (total $4,082.00)
Sold 1 SO Feb 2014 $41.00 for a net of $59.74

Net Profit:

1) Options Income:  = $59.74
2) Dividend Income: Ex-date is Feb 1, dividend is $0.5075 ($50.75)
3) Capital Appreciation if assigned at $41.00:  $0.89

Total Net Profit if Assigned and dividend collected:  $111.38
Absolute Return on Investment: ($111.38/$4,082.00) = 2.73%
Annualized Return if Assigned (50 days):  2.73%*(365/50) = 19.92%

FB Add-on and Roll-up

I have taken on positions in FB twice – even though I figure that it doesn’t meet my primary conditions for Rescue My IRA trades, I made my decision to go with it following Warren Buffet’s advice to "go with what you know."  I have been a member of FB since 2009 or so, and have really enjoyed connecting with old friends there. The ads this year have been particularly insidious – some online publications were even warning people that FB ads on a shared computer might spoil surprise gifts, lol – so I expect continued growth from the company, and at this point I can make an exception on the pick.

I wrote about establishing the first FB position here – http://rescuemyira.blogspot.com/2013/11/another-new-position-fb.html.  That trade was an early foray into using weeklies as well. I made an absolute return of 4.59% on that one, for just a three-day holding period…that works out to an annualized return of over 500%. 

If I apportion a share of Rescue My IRA to investments in “hot stocks” like FB, I believe I can control the risk from them in a way that will allow me to take some gains from them.  If I am careful, I may even be able to make a sustained, better than average return with these kinds of shares, as I did with that first FB trade.

With the current position, I’ve just added another 100 share lot and used that purchase as part of a strategy to roll up from a $50 strike to a $60 strike.   If the January 60 is called away, I will have generated an absolute return of over 17 percent in 90 days, exceeding my goal of an annualized return of 12 percent.

Here’s the analysis of the current FB position.

FB

Started with a 100 share lot, and have since added a second 100 shares.  Current basis is $10,988.49, or $54.94 per share.  I have been selling $50 strikes, but recently rolled up to $52.50, and with this trade have rolled up to $60 strikes; the current contract expires January 2014.  

Total option premiums:  -$92.06 (I had to buy to close a contract that was ITM)

Total dividend payments:  $0.00 – FB doesn’t pay dividends

Total stock gain at $60:  $994.40

Total, absolute gain on the position:  $902.34

Total, absolute return percentage ($902.34/$10,988.49):  17.40%

Annualized total return percentage (held approx 90 days):  70.55%

New Position: JPM

Rescue My IRA entered a new position in JPM last week, since so many positions had been unwound and there was a lot of cash sitting on the sidelines.  I chose this stock because in addition to my normal selection criteria, I checked the Bollinger Bands and found that the shares were priced below the mean for the period of analysis, and they appeared to be regressing upwards – the strike price I selected was just above the mean.

There is also an ex-dividend date coming up, and so I also sold a weekly option contract in order to maximize a short-term trade.

Here are the details, net of fees and commissions: 

JPM

Bought 200 shares at a total of $11,243.00, basis $56.22

Sold 2 JPM Jan 3 $52.50 2014 for a total of $132.48

Net Profit:

1) Options Income:  $132.48
2) Dividend Income: $0.00 (January 2 is the ex-dividend date, I expect the shares to be called away)
3) Capital Appreciation if assigned at $52.50:  $39.89

Total Net Profit if Assigned:  = $247.37
Absolute Return on Investment: ($247.37/$11,243.00) = 2.21%
Annualized Return if Assigned (20 days):  2.21%*(365/20) = 40.32%

Unwinding Two: F and WFC

As I sometimes do when Rescue My IRA is having a profitable month overall – and there have been several in a row, as a matter of fact – I will take advantage of some gains to prune some underperforming positions.  This month, I’ve unwound five positions for gains:  CMI, DIS, MAT, MRK, and WFC; I’ll report on WFC today and combine that with F, which I unwound for a loss last week.

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

F

Shares:

Bought 500 shares in two lots, average purchase price of $17.23 per share, and total basis $8,616.00

Sold on unwind 500 shares at $7,632.86

Total stock loss:  -$983.14

Options:

Total options income:   $398.43

Dividend:

Total dividends collected:  $50.00

Net Profit:
Total Net Loss after Unwinding:  -$534,71
Absolute Return on Investment: Not calculated
Annualized Return (105 days):  Not calculated

WFC

Shares:

Bought 300 shares, average share price $42.78, position basis $12,835.00

Sold on unwind 300 shares at $13,507.76

Total stock gain:  $672.76

Options:

Total options income:   -$401.03

Dividend:

Total dividends collected:  $90.00

Net Profit:
Total Net Profit after Unwinding:  $361.73
Absolute Return on Investment: ($361.73/$12,835.00) = 2.82%
Annualized Return (59 days):  2.82%*(365/59) = 17.44%

New Position: SO

I have been taking profits all this month, so I’m left flush with cash in Rescue My IRA.  I am building a cash reserve for now as I prepare to move to a Scottrade Options First account, and begin working with Cash Secured Puts in addition to my beloved Covered Calls.  I may be diversifying my approach with this account further, which is another reason to have a relative high cash balance – but I still have 10 covered positions in play!

I decided to look at developing a covered call position on an electric utility, since that high-dividend sector has been badly beaten down in the recent market.  My screen delivered five candidates, and after evaluating the trades I could make with them I settled on SO – bought 300 shares and sold a 41 Feb contract on them, with the potential for a dividend coming up before expiration...making this a potential hat trick.

Here are the details of the new SO position:

SO

Bought 300 shares at a total of $12,082.00, per share basis $40.27

Sold 3 SO $41.00 Feb 2014 for a total of $184.24

Net Profit:

1) Options Income:  $184.24
2) Dividend Income: $152.25 (January ex-date)
3) Capital Appreciation if assigned at $41.00:  $200.89

Total Net Profit if Assigned and dividend collected:  $537.89
Absolute Return on Investment: ($537.89/$12,082.00) = 4.45%
Annualized Return if Assigned (75 days):  4.45%*(365/75) = 21.65%

Unwinding DIS and MRK

On Wednesday, all the stars aligned, and since their deltas were over 1.00 and ex-dividend day was upon us, I decided to unwind two more of my December contracts:  DIS and MRK.  I still have one December contract left for WFC.  It is in the money and I will take a look at potentially unwinding it next week, but I may go ahead and let it ride until expiration next Friday.   

On an annualized basis, both of these positions exceeded my goals for a 12% annualized return – I held DIS for 50 days and MRK for 22 – and even on an absolute basis I met my goals for these contracts:  DIS 4.82% and MRK 1.28%.  I assumed when I opened the positions that they would be called away before the ex-dividend date, so unwinding them also saved me $10 in assignment fees for each one.

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

DIS

Shares:

Bought 200 shares at an average price of $67.56, total position basis $13,511.00

Sold on unwind 200 shares at $14,324.75 net.

Total stock gain:  $813.75

Options:

Total options income:   -$163.02

Dividend:

Total dividends collected:  $0.00

Net Profit:
Total Net Profit after Unwinding:  $650.73
Absolute Return on Investment: ($650.73/$13,511.00) = 4.82%
Annualized Return (50 days):  4.82%*(365/50) = 35.16%

MRK

Shares:

Bought 200 shares, average price $47.87, position basis $9,573.00

Sold on unwind 200 shares at $9,796.82

Total stock gain:  $223.82

Options:

Total options income:   -$101.82

Dividend:

Total dividends collected:  $0.00

Net Profit:
Total Net Profit after Unwinding:  $122.80
Absolute Return on Investment: ($122.80/$9,573.00) = 1.28%
Annualized Return (22 days):  1.28%*(365/22) = 21.28%

Unwinding MAT

Another green day in the markets yesterday, so I unwound my MAT trade a week early, rather than waiting for the shares to be called away next week at expiration.  This position was in place for a mere 35 days, and the annualized return on it was almost 26%.  

I have a couple of positions that will likely be called away this month, so it could be a good month on that account.  I haven't seen any opportunities to roll out other positions, and my cash stash is piling up, now 30% of the account value.

Details of the MAT below, net of fees and commissions, of course!

MAT

Shares:

The average price per share for this 200 share position was $44.88, with a total position basis of $8,975.00

Sold on unwind 200 shares at $9,274.83

Total stock gain:  $299.83

Options:

Total options income:   -$149.01 (due to BTC transaction)

Dividend:

Total dividends collected:  $72.00

Net Profit:
Total Net Profit after Unwinding:  $222.82
Absolute Return on Investment: ($222.82/$8,975.00) = 2.48%
Annualized Return (35 days):  2.48%*(365/35) = 25.89%

Unwinding CMI

Last winter, when I decided that I would focus strictly on S&P four- or five-star stocks in my trading plan, one of my first trades was with CMI.  My most recent contract was a December $125, and early last week the delta finally pegged at 1.0, so I unwound it rather than waiting for the shares to be called away. 

A highlight of this trade is the absolute gain percentage – it is above 12% for a position I held for 300 days.  

Readers know that my goal is 12% annualized; here is a trade that did better than my goal for it. 

And, hopefully, CMI is the first of between three and five positions that I will exit during December, all for share gains.

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

CMI

Shares:

The 100 share position had a basis price of $119.56, total position basis $11,956.00

Sold on unwind at $133.43 share, net $13,342.76

Total stock gain:  $1,386.76

Options:

Total options income:   -$167.56

Dividend:

Total dividends collected:  $225.00

Net Profit:
Total Net Profit after Unwinding:  $1,444.20
Absolute Return on Investment: ($1,444.20/$13,342.76) = 12.08%
Annualized Return (300 days):  12.08%*(365/300) = 14.70%

November 2013 Monthly Results

Trading activities in Rescue My IRA last month were successful.  The value of the account held at above $152K for the second month in a row, so I’m pretty happy about that. Also, there were a couple of trades that have ended up well – I use a 1% monthly gain as a target to proxy the income I will be able to draw from this account when I retire, and this month I hit the target.

There were three trades that I unwound at a profit, meaning I bought to close the covered call contract and sold the underlying.  Not counting these, I had at least 10 adjustment trades or “STOs.”  November was a good month for dividends to, with more than $500 in income recorded for this source.

There’s a lot of talk about maybe a bubble in the market.  Sure, there is always the chance of a correction and consolidation at any given moment, and while I am ignoring statistics and probability, this might be a good time for it after those successive record closes at the end of November.  But to be frank, I think that is a lot of BS just meant to scare away small-time investors such as myself so that the big guys can steal our money.

I’m thinning out the portfolio here during December – four or five contracts are due and they are in the money or close.  I expect to end the month in a 25-50% cash situation while I reconsider my strategy, which I promised myself I would do once the account was valued at above $150K.

That’s a good benchmark, by the way.  Back in 2007, the value of the three legacy accounts that I combined in a Merrill Lynch IRA was $144K – the covered call strategy has made me whole and then some over the last two years.  I am looking forward to what the future holds.

Here is a summary of my Rescue My IRA statistics for November 2013, based on last Monday’s close, December 2, 2013.     

Account Status:

·         Total Account Value, 12/2/2013 Market Close 152,928.16:  $ (vs. October close of $152,733.17)

·         Total Cash Reserve, 12/2/2013 Market Close:  $24,133.40

·         Core Stock Positions (as of 12/2/2013):   CAT (100 shares), DIS (200 shares), F (500 shares), FB (100 shares), INTC (400 shares), IP (200 shares), KO (400 shares), MAT (200 shares), MRK (200 shares), PSA (100 shares), WFC (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of November):  -$1,584.46 (-1.19 %)

Capital Gains Collected (net, month of November):  $5,094.27 (3.83%)

Dividends Collected (recognized on the ex-date): $546.50 (0.46%)
Interest on Cash Reserve (estimated): $0.19
Total, Absolute Return:  $4,056.50
Absolute Return, Percentage Basis:  3.05%
Annualized Return, Percentage Basis:  37.15%

Next Month To-dos:

There’s not a lot of dividend activity scheduled for December, with only DIS, MRK, and PSA scheduled.  The forecast says that would yield $378.00 or 0.28% for the month if it held – but DIS and MRK are both in the money with ex-dividend dates before the December contracts expire, so I am likely to be called early…as a matter of fact, I designed the trades that way, and these trades will yield about $500 in capital gains if they are assigned.

As I mentioned above, I am going to slow down the activities in this account this month while I do some research on augmenting the covered call strategy.  Obviously I will continue to post my trades.

The holidays are here – here’s to a great season, readers!