Rescue My IRA - December 2014 Results

There’s good news breaking out all over about the US economy.  There are those who have begun to worry that the market is overbought and that is the time to start tapering out of stocks.  They may indeed be prescient and able to pick up signals that things are going to come crashing down around us soon, but that is not the way I see it – as a “retail investor,” I don’t see how one can afford not be invested in this marketplace.

I think selling out into this market is what the big fish want us to do.  I started Rescue My IRA out of frustration from the table crumbs that were left to retail investors during the crash of 2007 - I want to use the covered call approach to try and beat those everyday returns.

By the way, today’s post recaps December 2014.  Next week, I’ll put together an annual recap of 2014, plus highlight a few of last year’s trades to accompany the annual recap. 

The potential interest rate shock from prospective Fed action still hangs over us, and on its own, that may well have been something to worry about.  To my mind, those fears are offset by current gas prices – I did a quick calculation that I’m getting about $60 a month back in my pocket, and I know there are people out there that could use the money more than I can.  The impact is showing up in consumer spending, and that’s enough to fire our economy for a bit longer. 

Earlier this year I was carrying a cash reserve of as much as 30 percent of the Rescue My IRA account value.  Because of my confidence in the economy, I started to lower that ratio to around 20 percent as of this month.  That will remain the plan until I see some confirmation of the potential for a downturn – possibly a down quarter of GDP growth, or similar – then I’ll start harvesting cash out of assigned positions until I rebuild the cash reserve to 30 percent. 

 

On the whole, December 2014 was a good month for Rescue My IRA.  The account met my goal of returning 1% in cash, between dividends, covered call premiums, and stock gains – I use a 12% annual return as a benchmark, in addition to periodically comparing my results against the S&P.  Plus, despite the terrific hiccup in the market mid-month, the account value reached a new high during Christmas week, cresting over $169K for a few days, before settling at $167,659.68 to end the year.

I’m staying with the covered calls approach – there’s nothing to convince me otherwise, at this point.  Meanwhile, here is the monthly summary of Rescue My IRA statistics for December, based on the market close on December 31. 

Account Status:

·         Total Account Value, 12/31/2014 Market Close:  $ 167,659.68, that’s down a little from the November close of 168,107.47)

·         Total Cash Reserve, 12/31/2014 Market Close:  $38,484.88.

·         Core Stock Positions (as of 12/31/2014):  BA (100 shares), CNP (400 shares), COP (100 shares), CRUS (400 shares), DIS (100 shares), EMC (400 shares), FB (100 shares), GE (400 shares), GM (400 shares), HAL (200 shares), PFE (300 shares), QCOM (100 shares), T (400 shares), WIN (600 shares)

Performance Metrics:

·         Option Premiums Collected (net, month of December):  $1,336.06 (0.86%)

·         Capital Gains Collected (net, month of December):  -$260.92 (-0.17%)

·         Dividends Collected (recognized on the ex-date): $575.00 (0.37%)

·         Interest on Cash Reserve: $0.30

·         Total, Absolute Return:  $1,650.44 (1.07% absolute return, annualized return

12.82%) 

Next Month To-dos:

There are three positions with January covered call contracts:  DIS, EMC, and FB. If these positions are called away at expiration, I’ll earn stock gains totaling $570.32, or about 0.34% on the account value (for 2014, I am measuring this return against the 12/31/2013 account value, when I write results in January the basis will be the 12/31/2014 value). 

January’s dividend forecast is slim:  only two stocks have ex-dividend dates coming up:  COP and T.  Neither of these have January calls written against them, so I am very likely to collect dividends in the amount of $261.00, or 0.16% of the account value. 

It was typical during 2014 that I could forecast about a half of a percent return on the account between share gains and dividends, and that is once again the case for January 2015.  In fact, the forecast return is exactly 0.50%; as usual, I’ll plan to make up the balance in covered call premiums.

As I mentioned at the start of the post – I’m staying the course with the covered call strategy – Rescue My IRA just started the fourth year using this approach.  During that time, the account value has grown from around $127K to where it is now.  I could choose a less risky or easier way to invest, but that would likely mean lower returns; and besides, I’m enjoying this approach. 

Until next month, here’s to happy trading in January for my readers – and for the rest of 2015!

Adding on and Rolling Out GM and T

During the rock-and-roll week we just had, I took advantage of the down days to do some add-ons and roll-outs on GM and T.  While the shares were low, I added 100 shares to each of these positions while also rolling them out a month or two.

Here are the current position plans for GM and T after the roll-outs, net of fees and commissions, and assuming I collect dividends through the holding period:

GM

With all the company has been through in the last few years, GM is currently rated five stars by S&P.  I established a 300-share position in November 2014, and added 100 shares this week to make a 300-share position out of it.  The basis is now $12,397.99, or $30.99 per share.  The current covered call is $32 Mar 2015; I started with a $32 strike and have been rolling the contract out every other month or so.   

Total covered call premiums:  $520.95

Total dividend payments (includes March ex-date):  $210.00

Total stock gain at $32:  $384.01

Total, absolute gain on the position:  $1,114.96

Total, absolute return percentage ($1,114.96/$12,397.99):  11.98%

Annualized total return percentage (approx 142 days if held to expiration):  30.97%

T

As with GM, this position was established with a 300-share lot back in August, and I added 100 shares last week.  Now it is a 400-share position with a basis of $13,621.96, or $34.05 per share.  I have been selling covered calls at the $35 strike, rolling them just about monthly since I started.

Total covered call premiums:  $308.44

Total dividend payments (includes January ex-date):  $336.00

Total stock gain at $35:  $360.04

Total, absolute gain on the position:  $1,004.48

Total, absolute return percentage ($1,004.48/$13,621.96):  7.37%

Annualized total return percentage (held approx 200 days):  13.46%

Two Roll-outs: EMC and GE

With the market headed south last week, there were several opportunities to roll out some of my positions.  My strategy was to look primarily at December expirations, and EMC appeared as a candidate; looking a little further out, my GE position – recently rolled up and out – also was ripe for a roll out, so these two transactions are the topic of this post. 

Here are the position plans for EMC and GE, net of fees and commissions, and assuming I collect dividends through the holding period:

EMC

This is a 400-share position established in September, with a basis of $11,745.99, or $29.36 per share.  The current covered call is $30 Jan 2015; I started with the October $30 and have been rolling the contract monthly.

Total covered call premiums:  $407.46

Total dividend payments (includes December ex-date):  $92.00

Total stock gain at $30:  $236.01

Total, absolute gain on the position:  $735.47

Total, absolute return percentage ($735.47/$11,745.99):  6.26%

Annualized total return percentage (approx 135 days if held to expiration):  16.93%

GE

I’ve held GE positions several times in Rescue My IRA since I started the account in October 2011.  This go-round is a 400-share position, started in April 2014, with a basis of $10,348.98, or $25.87 per share.  I have been selling covered calls ranging between $25 and $30 strike prices, but when compared to my goal of earning a 12% annualized return, this position hasn’t done so well – even though the total return is positive.

In light of this, I will continue to work on the position to see if I can improve it – but there is a strong likelihood I will accept the gains as they are on this $26 Feb 2015 position.   

Total covered call premiums:  $49.91

Total dividend payments (includes December ex-date):  $220.00

Total stock gain at $26:  $33.02

Total, absolute gain on the position:  $302.93

Total, absolute return percentage ($302.93/$10,348.98):  3.83%

Annualized total return percentage (held approx 300 days):  4.66%

New Position: HAL

Sometimes it is a challenge to find new positions for Rescue My IRA.  I do maintain a set of very selective criteria for the account, typically including stocks that are part of the S&P 500 Index, are rated 4 or 5 stars by S&P, and pay dividends yielding between 3 and 5 percent annually; I also will look at the year to date stock price increase and the 52 week trading range as part of my decision making.  This has helped manage the risk of losing stock positions over the years, but it is somewhat conservative and is why the account will lag somewhat from the S&P annual return.

Sources I use for stock picks generally include the screen described above, but I also will draw a tip from the Yahoo Just Covered Calls board or some of the blogs that are shown over in the right hand blogroll column.  A recent pick from the gang at the Yahoo board was HAL – I set up a 200 share position the other day and sold $41 Dec 2015 covered calls against it.  It just happened to go ex-dividend on December 3, so that was a nice additional return on the shares.

Here is the position plan for HAL, with results reported net of commissions and fees:

HAL

Transactions

Bought 200 shares at average share price $40.94 (total $8,187.00)
Sold 2 $41.00 Dec 2014 covered calls

Net Profit:

1) Options Income:  = $306.49
2) Dividend Income (December ex-dividend): $36.00
3) Capital Appreciation if assigned at $41.00:  -$5.00

Total Net Profit if assigned on the ex-dividend date:  $337.49
Absolute Return on Investment: ($337.49/$8,187.00) = 4.12%
Annualized Return if Assigned and Dividend Collected (18 days):  4.12%*(365/18) = 83.59%

Position Repair: CRUS

After I wrote my to-do list in the November monthly report, I quickly set out to do a position repair on the CRUS holding in the Rescue My IRA account.  As it was, I had adjusted the strike price down from $20 to $18.50, and if I had let the stock get called away I would record a loss on the shares totaling $600.  I decided to roll back up to $20, combined with a roll-out, as a way to mitigate this risk.

The position doesn’t meet all the rules of my trading plan, and as a matter of fact, I set it up as an exception.  For example, I typically look for shares that have a 4-star or better S&P rating, but CRUS was a 3-star stock when I bought it, and I also look for a dividend yield of between 3 and 5% per year, but CRUS doesn’t pay dividends.  Then I rolled down to $18.50 because I wanted to divest the shares after they were no longer rated by S&P. 

I’ve come around to not writing the position off after all – the volatility of this stock means there are plenty of covered call premiums available, enough to meet the yield expectations I have for shares in this account – 12% annualized.  So on Monday I rolled the shares out from December to March, and up from $18.50 to $20.00.

Here’s the current position plan for CRUS, net of fees and commissions.

CRUS

This is a 400-share position established in February 2014 with a basis of $8,038.00, or $20.10 per share.  The current covered call is $20 Mar 2015, I have been selling covered calls with strike prices ranging from $18.50 to $22.00.

Total covered call premiums:  $1,576.28

Total dividend payments (no dividend on CRUS):  $0.00

Total stock loss at $20:  -$56.00

Total, absolute gain on the position:  $1,520.28

Total, absolute return percentage ($1,520.28/$8,038.00):  18.91%

Annualized total return percentage (approx 375 days if held to expiration):  18.41%

Rescue My IRA: November 2014 Results

Outside there’s lingering snow from last week in the hollow here at Hawksbill Cabin in Stanley, Virginia.  I can’t help but think about our vacation last May - I wrote that month’s wrap up out on the back porch of the John Dougherty House, in Mendocino, CA – there’s a photo to the right – for the heck of it I’m throwing in a view of the highlands and the beach there too.

Still, month in and month out, Rescue My IRA churns on, and November was no different.  My cash results weren’t where I wanted them to be – I paid to unwind several positions and ended up buying to close in the money options in exchange for stock gains, but the market took care of me anyhow.  We’ve weathered October's rough seas and then some, and the account value achieved a new high.

Meanwhile, here is the monthly summary of Rescue My IRA statistics for November, based on the market close on the 28th. 

Account Status:

·         Total Account Value, 11/28/2014 Market Close:  $ 168,107.47, that’s up from the October close of 166,725.42)

·         Total Cash Reserve, 11/28/2014 Market Close:  $43,606.47

·         Core Stock Positions (as of 11/28/2014):  BA (100 shares), CNP (400 shares), COP (100 shares), CRUS (400 shares), DIS (100 shares), EMC (400 shares), FB (100 shares), GE (300 shares), GM (300 shares), KRFT (100 shares), PFE (300 shares), QCOM (100 shares), T ( 300 shares), WIN (800 shares)

Performance Metrics:

·         Option Premiums Collected (net, month of September):  -$1,630.39 (-1.06%)

·         Capital Gains Collected (net, month of September):  $2,030.60 (1.30%)

·         Dividends Collected (recognized on the ex-date): $ 288.00 (0.19%)

·         Interest on Cash Reserve: $0.30

·         Total, Absolute Return:  $661.51 (0.43% absolute return, annualized return

5.19%) 

Next Month To-dos:

In December, there are five positions with covered calls that will expire:  CRUS, EMC, GM, KRFT, and T.  All but CRUS are in the money, and that one is only barely out of the money.  I will probably roll that one out and up – it is a position that will currently show a loss on the shares if I don’t; I think I may go as far out as March on the adjustment.  I’ll also take a loss on the price for KRFT, but overall there’s a positive return on that sluggish trade and it seems like a good time to divest it.

Assuming that I am successful on the CRUS roll out, I’ll record $406.00 in stock gains for the month, an absolute return of 0.26% - about a quarter of the way to my monthly goal of 1% in the Rescue My IRA account. 

The dividends forecast for December is a good one as well.  There are five ex-dividend dates coming up for DIS, EMC, GE, GM, and WIN.  The total dividends payment is $510, or 0.33%; only GM is in the money out of this group.  If GM is assigned, the dividend count reduces by $90, and the percent return goes down to 0.27%.

Between the share gains and dividends, I stand to bring in about half a percent return on the account – my goal is one percent, so obviously there is work to do in order to accomplish that.

Speaking of strategy, I had planned to take my cash reserve down to 20% overall on the account value – that would be around $34,000 - in order to take advantage of what I expect to be continued gains in the market over the next few months.  However, because of all the unwind trades I ended up with more cash than planned - more than $40,000, in fact.  I have some work to do to find some suitable stocks to get the excess cash invested.

I’m happy with where the account sits here in November – I’ll stay the course with the covered call strategy.  Here’s to happy trading for my readers!

Rolling up and out BA and DIS

This month I have adjusted a couple of positions in Rescue My IRA.  I guess that’s a bullish move, and I can live with that.  Today, I’ll post about rolling BA and DIS up and out.    

I established the DIS covered call trade earlier in November – setting sights on the annual dividend payment in December.  The stock has moved past my strike price with time left on the clock, the company has been on a growth curve, and no less than five friends have recently told me they are taking their families to Disney World in Orlando for a week or more this quarter.  So I’m on board with a roll up on this one.

On BA, similarly – this is a stock I’ve held a few times in the past.  It seems like there is a lot of macro effect in the economy that will lead this great American company to growth, so I am rolling it up. 

Rescue My IRA has a few years to go before I start to use it as a source of retirement income.  I feel like I have to make strategic decisions like these for time to time for the long term.  Three years in, I’m not worried about mistakes so much anymore, because I know how to manage them back.

But I do feel good about these trades.  Here are the details, net of commissions and fees, and assuming I hold the shares through upcoming ex-dividend dates.

BA

This is a 100-share position established in September 2014 with a basis of $129.37 per share.  I have been selling monthly $130 strikes and rolling them out, but this transaction raised the strike to $135 and rolled out to February. 

Total covered call premiums:  $141.21

Total dividend payments (assumes I collect February):  $146.00

Total stock gain at $135:  $545.00

Total, absolute gain on the position:  $832.21

Total, absolute return percentage ($832.21/$12,370.00):  6.43%

Annualized total return percentage (approx 150 days if held to expiration):  15.65%

DIS

This is a 100-share position established in late October 2014 with a basis of $87.59 per share.  As I mentioned above, I bought this one to set up a dividend play, since the stock pays an annual dividend in December.  Besides that, I grew up in Orlando and have pretty much always loved the company.  This trade is based on the assumption the stock will continue to climb after the December 2014 ex-date.

Total covered call premiums:  -$70.77 (I gave up this return based on the roll up)

Total dividend payments (forecast December ex-dividend):  $86.00

Total stock gain at $92.50:  $473.01

Total, absolute gain on the position:  $488.24

Total, absolute return percentage ($488.24/$8,758.99):  5.57%

Annualized total return percentage (held approx. 90 days):  22.61%

Sensitivity analysis suggests that if the stock is not called away at the $92.50 strike, I will roll out again – and might roll down to adjust.  The $90 strike is profitable, and the $87.50 is close, so between the dividend and the additional call premium, this position would remain in pretty good shape.  

New Positions: GM and WIN

This is the second of a couple of “catch up” posts – earlier, I wrote about four “unwind” transactions, when I closed out covered calls on stocks I held, and now I’m writing about two stocks I added to the Rescue My IRA covered call portfolio this month.  The next post, in a couple of days, will report my results in the account for the month of November.

Here are the position plans for the two stocks, with anticipated results reported net of commissions and fees:

GM

Transactions

Bought 300 shares in early November at average share price $31.02 (total $9,307.00)
Sold 3 $32 Dec 2014 covered calls

Net Profit:

1) Options Income:  = $163.24
2) Dividend Income (December ex-dividend): $90.00
3) Capital Appreciation if assigned at $32.00:  $275.00

Total Net Profit if assigned on the ex-dividend date:  $528.24
Absolute Return on Investment: ($528.24/$9,307.00) = 5.68%
Annualized Return if Assigned and Dividend Collected (52 days):  5.68%*(365/52) = 39.84%

WIN

There is a lot going on with this stock – it is one I held before in the Rescue My IRA account, mainly because of the annual yield of more than 10%.  Now there is the planned spinoff of assets into a REIT – with shares returned as a dividend to WIN holders, and a December ex-dividend date that takes place before the spinoff.  All of this will make for an interesting holding, with a likely early call on some or all of my shares, but generally small investors can do well with these, and in any case, there will be a return from the covered call premium, allowing a slight hedge against the stock risks.

Transactions

Bought 800 shares at shares on November 24, average share price $9.85 (total $7.879.00)
Sold 8 $10 Feb 2015 covered calls

Net Profit:

1) Options Income:  = $183.00
2) Dividend Income (December ex-dividend): $200.00
3) Capital Appreciation if assigned at $10.00:  $103.00.

Total Net Profit if assigned and dividend collected:  $486.00
Absolute Return on Investment: ($486.00/$7,879.00) = 6.17%
Annualized Return if Assigned and Dividend Collected (90 days):  6.17%*(365/90) = 25.02%

Four Unwinds! AIG, HPQ, IP, and TGT

So I am way behind on posting transactions here – I wanted to do better in November but it didn’t work out.  I’ll partly make it up with a couple of posts here – first a summary of the four “unwind” transactions I completed this month, and second, a note about the two new positions I started this month.  Then, of course, there will be the wrap up post for the end of the month, probably early next week.

The four positions I unwound this month included (in alphabetical order) AIG, HPQ, IP, and TGT.  As a matter of fact, two of them – AIG and HPQ – were trades of less than an month in duration, and it’s quite possible that the HPQ trade was the best annualized return I’ve made since I started the Rescue My IRA account.  More on that later, after a quick recount of how and when I might typically unwind a position.

Generally speaking, anytime the delta on one of my covered calls reaches 1.00, I will consider a trade if I can buy to close the option and sell for a capital gain.  While these transactions typically mean I’ll lose a little cash in total returns (usually averaging $10-$30 per lot of 100 shares), there is an offset from a reduced commission fee (Scottrade charges $18 for settling option trades versus $7 for a user initiated trade), and usually I can get the funds back to work right away, generating new returns from covered call premiums to offset that.  Plus, I generally have enough action going on in the account not to worry about these small amounts.

Here is the final analysis of the four trades, net of commissions and fees, listed in alphabetical order:

AIG

Shares:

Bought 200 shares in early November at an average price of $53.83, total position basis $10,765.00.

Sold on unwind 200 shares at $10,962.75. 

Total stock gain:  $197.75

Options:

Total options income:   -$109.01 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $0.00 (I completed this trade before the December ex-dividend date)

Net Profit:
Total Net Profit after Unwinding:  $88.74
Absolute Return on Investment: ($88.74/$10,765.00) = 0.82%
Annualized Return (15 days):  0.82%*(365/15) = 20.06%

HPQ

Shares:

Bought 200 shares in mid-November at an average price of $37.25, total position basis $7,449.00.

Sold on unwind 200 shares at $7,824.00. 

Total stock gain:  $375.82

Options:

Total options income:   -$265.02 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $0.00

Net Profit:
Total Net Profit after Unwinding:  $110.80
Absolute Return on Investment: ($110.80/$7,824.00) = 1.49%
Annualized Return (5 days):  1.49%*(365/5) = 108.58%

IP

Shares:

Bought 200 shares in May 2013 at an average price of $47.96, total position basis $9,592.00.

Sold on unwind 200 shares at $10,450.76. 

Total stock gain:  $858.76

Options:

Total options income:  $123.77 (By unwinding, I exchanged most of the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $400.00

Net Profit:
Total Net Profit after Unwinding:  $1,382.53
Absolute Return on Investment: ($1,382.53/$9,592.00) = 14.41%
Annualized Return (570 days!!!):  14.41%*(365/570) = 9.23%

TGT

Shares:

Bought 100 shares in June 2014 at an average price of $58.40, total position basis $5,839.99.

Sold on unwind 100 shares at $6,411.26. 

Total stock gain:  $571.21

Options:

Total options income:  -$482.53 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $52.00

Net Profit:
Total Net Profit after Unwinding:  $140.74
Absolute Return on Investment: ($140.74/$5,839.99) = 2.41%
Annualized Return (90days):  2.41%*(365/90) = 9.77 %