Like many of my generational colleagues, the baby boomers, I've found that my best intentions about saving for retirement aren't always meeting the mark. In 2011, I took some old 401(k) accounts and combined them into a self-directed IRA with Scottrade, and established a strategy of using covered calls to stabilize and enhance my returns. Rescue My IRA chronicles the progress of my IRA rescue using this approach.
Tuesday, February 11, 2014
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:
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.
income: -$12.51 (I exchanged the option premium for additional
stock gains in this trade)
Net Profit: Total Net Profit after
Absolute Return on Investment: ($458.52/$12,082.00) = 3.80%
Annualized Return (75 days): 3.80%*(365/75) = 18.47%