Called Away on FB

Last month, I adjusted the FB position that I established in December, rolling up to a $60 strike.  The shares have continued to climb since then, reaching nearly $70 last week as February contract expirations approach.  I had a profitable position as it stood with the $60 strikes, and while I looked for opportunities to roll-up and roll-out, I didn’t find anything to pull the trigger on, and finally allowed the shares to be assigned. 

As I wrote in the last post about FB, this is my second go ‘round with the stock.  I made a great return the first time, and as the analysis below shows, I did well with it this second time.  I’m definitely going to watch for an opportunity to get in again, probably on the next dip below $65, if there is one.  If I didn’t do anything but sell a back-month covered call, I could meet my goal of a 12% annualized return with this stock! 

Here’s the analysis of the most recent FB position.

FB

This is a 200 share position established between November and December 2013 with two 100 share purchases.  The per share basis is $54.94, for a total of $10,988.49.  Past trades had rolled the covered call strike price up to $60. 

There’s an earlier post about adding the second lot of 100 shares while rolling up here: 

http://rescuemyira.blogspot.com/2013/12/fb-add-on-and-roll-up.html

Total option premiums:  $274.93

Total dividend payments (no dividends on FB):  $0.00

Total stock gain at $60:  $994.40

Total, absolute gain on the position:  $1,269.33

Total, absolute return percentage ($1,269.33/$10,988.49):  11.55%

Annualized total return percentage (held 120 days):  35.14%

Position Repair: CAT

The battery pack on my old Dell laptop died last week, so until I replace it, I’m reconstructing my record spreadsheets and post templates on a borrowed computer. That puts me a little behind the curve on some recent trades, including the one I’ll post about today – a position repair situation on my old CAT shares, and one I’ll post soon about being called away on 200 shares of FB.

As far as the CAT position goes, I established this back in August 2012, making it an exceptionally long-lived trade for Rescue My IRA.  That’s due to the fact that the stock was in decline of most of 2012 – I haven’t checked, but wouldn’t be surprised if it were the dog of the Dow, and not just one of the worst performers of the year. 

Since buying the shares in August 2012, I have sold covered calls at the original $90 strike, have dipped as low as $85, and with the current trade, moved up to a $95 strike.  I count 13 adjustments on the options, and have collected six dividend payouts, with one to go before the current contract expires.  At $95, there will be a share gain, so as things currently stand, if all goes well with this trade, I’ll have a hat trick!

The last adjustment also moved the position into a place where the annualized gain for the period is 10.42%, getting close to my goal of 12%.  The absolute gain is almost 18% - nothing to complain about here, because when I had $85 and $87.50 strikes on CAT the position was going to 5% or 6% annualized.  That’s also why I call this a position repair trade.

Here’s the analysis of the position, net of fees and commissions and assuming I collect the April dividend for CAT.

CAT

This is a 100 share position established at $87.17 per share in August 2012, total basis $8,716.99.

The current covered call is at a $95 strike, but I have sold calls as low as $85 during the holding period.

Total covered call premiums:  $405.86

Total dividend payments (including the forecast April ex-dividend):  $396.00

Total stock gain at $95:  $765.83

Total, absolute gain on the position:  $1,567.69

Total, absolute return percentage ($1,567.69/$8,716.99):  17.98%

Annualized total return percentage (held approx 630 days):  10.42%

Unwinding SO

Last December I established a position in SO, selling a 41 Feb covered call against 300 shares.  The trade was designed to provide a juicy dividend during the holding period because of a January ex-dividend date.  With the shares well in the money, I unwound the position for a gain on Monday.

In looking back at the position plan for this stock, my results are slightly less than what I had forecast in December.  That is the price of not waiting for the shares to be called away on expiration – it’s usually justified by the act of getting a new position in place quickly after the sale.  Only I am not doing that this time, I am trying to keep about a third of my account in cash reserves until we see where the market is truly headed.

In any case, I exceeded my goal for the trade with an annualized return of over 18 percent - here is the record on the SO position, net of fees and commissions:

SO

Shares:

Bought 300 shares at an average price of $40.27, total position basis $12,082.00

Sold on unwind 300 shares at $12,400.78. 

Total stock gain:  $318.78

Options:

Total options income:   -$12.51 (I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $152.25

Net Profit:
Total Net Profit after Unwinding:  $458.52
Absolute Return on Investment: ($458.52/$12,082.00) = 3.80%
Annualized Return (75 days):  3.80%*(365/75) = 18.47%

Rolling Out IP

Last week seemed to offer a continuation of the consolidation we’ve been seeing during February so far; however, by Friday we finally had an up day, so the market ended on a higher note, and the value of the Rescue My IRA achieved a new high.  Meanwhile, I took advantage of the trading earlier in the week and rolled out the IP position, securing this month’s dividend payment and scoring a nice premium from the extended covered call.

Here’s the analysis of the position, net of fees and commissions and assuming I collect the February dividend for IP.

IP

This position consists of 200 shares, with a total basis of $9,585.00, or $47.93 per share.  Since last June, I’ve sold strikes ranging from $47.00 to $49.00; the current covered calls have a strike price of $48.00.

Total covered call premiums:  $811.31

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

Total stock gain at $48:  -$2.11

Total, absolute gain on the position:  $1,059.20

Total, absolute return percentage ($1,059.20/$9,585.00):  11.05%

Annualized total return percentage (held approx 210 days):  19.10%

GLW: Adding on and Rolling out

I recently picked up a 300-share lot of GLW, and then added a second 300-share purchase after a market dip last week.  The add-on purchase lowered my per-share basis from $18.76 to $18.04, so I was able to profitably move from $19.00 strikes to $18.00 on the covered call sales I make on the position. 

I have subsequently rolled-out the calls from February to April on GLW.  Although it hasn’t been announced yet, I also expect to see an ex-dividend date on these shares near the end of the month; the quarterly yield is 10 cents per share.

These factors combined to yield a 3.13% absolute return, annualizing to 18.42% after adjusting for my estimated 62-day holding period.  Here’s the analysis of the position, net of fees and commissions and assuming I collect the February dividend for GLW.

GLW

The GLW position consists of 600 shares, bought in two 300-share lots, with a current total basis of $10,823.00, or $18.04 per share.  I began by selling a February $19 covered calls, and recently rolled out to April $18. 

Total covered call premiums:  $318.81

Total dividend payments (including the forecast February ex-dividend):  $60.00

Total stock gain at $18:  -$40.11

Total, absolute gain on the position:  $338.70

Total, absolute return percentage ($338.70/$10,823.00):  3.13%

Annualized total return percentage (held approx 62 days):  18.42%

January 2014 Results

We’ve had a couple of weeks now of market retrenchment, with the Dow and S&P now below the highs they hit earlier this month.  Despite that, Rescue My IRA ends the month with an account value above $154K, which is within a couple of hundred dollars of where it ended December.  Not bad; in terms of the revenue earned in the account, the account achieved the 1% goal by generating more than $2,000 between call premiums, dividends, and stock gains. 

After starting the month with over $50K in cash on the sidelines, I put about $10K into add-ons and roll-outs of existing positions that had corrected with the market.  Of that $40K, I will invest up to $25K should the correction continue to the 15-20% level. 

Two positions were called away last month, INTC and JPM, and of the four January contracts, I rolled out the other two.  It was a relatively light month for dividends; only $278 was generated that way.  All of which leaves the bulk of the income to have been generated through covered call premiums.

Many market analysts are saying that we could see the correction continue a few more months, possibly until summer.  My plan in Rescue My IRA will to be to sit tight with about this much cash waiting for buying opportunities, and to continue with a careful approach to rolling out those contracts that are bound to expire worthless.  I’d prefer not to sell too far into the back months with this approach and will try to stay within two months of the contract I am closing out.

Here is a summary of my Rescue My IRA statistics for January 2014, based the January 31, 2014 close.     

Account Status:

·         Total Account Value, 1/31/2014 Market Close:  $154,240.10 (vs. December close of $154,520.65)

·         Total Cash Reserve, 1/31/2014 Market Close:  $41,312.10

·         Core Stock Positions (as of 1/31/2014):   ABT (300 shares), CAT (100 shares), CRUS (400 shares), FB (200 shares), GLW (600 shares), IP (200 shares), KO (400 shares), PFE (300 shares), PSA (100 shares), SO (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of January):  $1,592.91(1.03%)

Capital Gains Collected (net, month of January):  $96.61 (0.06%)

Dividends Collected (recognized on the ex-date): $278.25 (0.18%)
Interest on Cash Reserve (estimated): $0.20
Total, Absolute Return:  $1,967.97 (1.27% absolute return, 15.50% annualized return)

Next Month To-dos:

Next month will be slightly better in terms of dividends, with four positions going ex-dividend during February and yielding $320.00.  That works out to 0.21% return – about one-fifth of what I need to meet my 1% goal of $1,550.  I’ll need to sell some calls and earn some stock gains to meet that objective.

In the stock gains department, there is good opportunity with four positions expiring in February:  FB – currently in the money with a $60 strike; GLW – just out of the money with an $18 strike; IP – also out of the money with a $48 strike; and SO – in the money with a $41 strike.  If these contracts are called away, my net stock gain will be $1,150; that is a 0.75% return and puts me near the 1% goal when added to the dividend haul.

The rest of it will need to be made up with call premiums.  Since I forecast a little bit of rolling out activities during February, it doesn’t seem like I’ll have a problem getting on track with the goal.   

After a busy and mostly down January, I was happy to hit the goal for this account and to see the account value remain stable despite overall poor results in the stock market.  Hopefully, I’ll be able to keep this up in Rescue My IRA for February.

Until next month, happy trading!