Saturday, February 22, 2014

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.


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%

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