Rescue My IRA March 2014 Results

While the market value of Rescue My IRA shows sideways movement for March, the account’s cash value actually grew, so I’d assess this as a good month.  That’s despite the fact that global chaos and tepid economies continue to be in the mix.  As I noted last month, Warren Buffet and others have said that good news or bad, the stock market rises in the long term – so I’m holding my place with about 70 percent of Rescue My IRA in stocks.

I plan to continuing rolling along with this unusually large (at least compared to what I've typically maintained in the account) cash reserve on hand until we get a little bit of a correction, or until the market starts moving up again.  While I have had this strategy in place, I have been a little worried about my portfolio approach – I only have 9 or 10 positions going at the moment, as opposed to the 12 to 16 that I consider optimal.  As cash becomes available from position close outs, I am investing with the goal of lowering the average position value to create more diversity in the account.

To close out these introductory remarks, I’ll repeat that March was a good month:  the account value reached above $158K a couple of times before settling at the value I’m reporting today as of month end. Although it didn’t start out that way, the dividend returns were higher than usual, at $437.00, and call premiums were lower, at $325 – just about a half percent return between the two of them.  Rounding out the returns was a solid gain on ABT, which I unwound earlier in the month, so the account met my goal of more than 1% return for the month.   

Here is a summary of my Rescue My IRA statistics for March 2014, based the March 28, 2014 close.   

Account Status:

·         Total Account Value, 3/28/2014 Market Close:  $157,488.79 (vs. February close of $157,816.52)

·         Total Cash Reserve, 3/28/2014 Market Close:  $53,892.78

·         Core Stock Positions (as of 3/28/2014):   CAT (100 shares), CRUS (400 shares), F (500 shares), FB (200 shares), GLW (600 shares), IP (200 shares), KO (400 shares), PFE (300 shares), PSA (100 shares), WIN (900 shares)

Performance Metrics:
Option Premiums Collected (net, month of March):  $325.26 (0.21 %)

Capital Gains Collected (net, month of March):  $1,135.73 (0.74 %)

Dividends Collected (recognized on the ex-date): $437.00 (0.28 %)
Interest on Cash Reserve (laughable): $0.38
Total, Absolute Return:  $1,898.37 (1.23% absolute return, 14.74% annualized return)

Next Month To-dos:

As I look forward to April, the month looks to be one where it will be a challenge to meet my goal of a 1% absolute return:  only two positions are scheduled for dividends (CAT and F), and I have three calls expiring (CRUS, GLW, and PFE).  The dividend income is offset by slight stock losses on these three positions combined, so I am starting off with a forecast of zero percent absolute return. 

I’m continuing to rebuild my spreadsheets for the account – the battery replacement on the old Dell didn’t end up working.  Mostly, I have everything back to a place where I can manage the account and keep the blog up to date.

I hope my readers have enjoyed a couple of good months in February and March, as I have.  Until April, happy trading!

IP - Rolling Out and Up

I’m still rebuilding my portfolio data, which was lost when my old laptop crashed.  Just rebuilt the proforma spreadsheet for IP, which I rolled out and up last week – so here is an adjustment post about that transaction.

I’ve traded in and out of IP since the beginning of Rescue My IRA.  My current position is the longest I’ve held any contract on these shares.  IP has been bumping along at the top of its trading range, and its failure to break through to a new high has meant I have ended up holding it for the long haul.

Here’s the analysis of the position, net of fees and commissions, and assuming I collect dividends through the holding period.

IP

This is a 200-share position with a basis of $9,592.00, or $47.96 per share.  I have been selling strikes between $47 and $49 strikes and rolling them monthly; the current contract expires in July 2014.

Total covered call premiums:  $684.40

Total dividend payments:  $330.00

Total stock gain at $49:  $190.00

 Total, absolute gain on the position:  $1,204.40

Total, absolute return percentage ($1,204.40/$9,592.00):  12.56%

Annualized total return percentage (held approx 425 days):  10.78%

New Positions: F and WIN

After I unwound ABT, I started to look for a new position immediately.  Also, as I wrote about last week when I posted about the new FB position, I believe the portfolio needs diversity in the form of 12 to 16 positions, so I decided to break the funds I had available into two positions.  Now I have 11 in play, not quite where I want to be but as the capital comes available from future assignments I will make things right.

This time I went with two lower price per share stocks, one of which (WIN) pays a 12% yield in dividends – so simply buying and holding will make my goals, as long as that dividend holds.  Although I sold an in the money covered call, my plan will be to roll this out to continue collecting dividends and picking up extra cash from the premiums.

Here is the analysis of the two new positions, net of fees and commissions.

F

Transactions

Bought 500 shares at average share price $15.32 (total $7,662.00)
Sold 5 16 May 2014 covered calls

Net Profit:

1) Options Income: $126.73
2) Dividend Income: $62.50
3) Capital Appreciation if assigned at $16.00:  $320.00

Total Net Profit if assigned and dividend collected:  $509.23
Absolute Return on Investment: ($509.23/$7,662.00) = 6.65%
Annualized Return if Assigned (75 days):  6.65%*(365/75) = 32.34%

WIN

Transactions

Bought 1,000 shares at average share price $8.12 (total $8,117.00)
Sold 10 8 May 2014 covered calls

Net Profit:

1) Options Income: $220.50
2) Dividend Income: $200.00
3) Capital Appreciation if assigned at $8.00:  -$135.00

Total Net Profit if assigned and dividend collected:  $285.50
Absolute Return on Investment: ($285.50/$8,117.00) = 3.52%
Annualized Return if Assigned (75 days):  3.52%*(365/75) = 17.12%

Unwinding ABT

As the month of March began, I only had two contracts with expirations to look after:  ABT and KO.  Yesterday I posted about rolling out KO; late last week I also unwound ABT.  Rescue My IRA has no additional contract related activities to take care of this month. 

To recap my strategy on unwinding positions, it is a tactic I will look at whenever I have a stock that is in the money during its contract month, as the delta on that covered call reaches 1.00.  Essentially, there is no time premium left, and there is a window for closing out the position by buying to close the call and selling the stock.  The option premium will be just about the same as the value of the stock over and above the stock price.

There is a slight variation in the cost of executing these trades – at Scottrade, I pay commissions and fees on the option transaction and on the stock transaction, and these costs are in addition to the spread on the buy and sell transactions.  Offsetting the commissions is the assignment fee that I would incur at expiration – it’s a buck or two more than the cost of two commissions. 

Whenever I execute and unwind trade, I know I am giving up a few dollars on the transaction, but it is more than made up for if I can get the proceeds immediately invested in a new position – which I did in this case, and I will post tomorrow.  Until then, here is the final analysis of the ABT trade, net of commissions and fees:

ABT

Shares:

Bought 400 shares at an average price of $36.88, total position basis $14,752.99

Sold on unwind 400 shares at $15,888.72. 

Total stock gain:  $1,135.73

Options:

Total options income:   -$491.03 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $66.00

Net Profit:
Total Net Profit after Unwinding:  $710.70
Absolute Return on Investment: ($710.70/$14,752.99) = 4.82%
Annualized Return (90 days):  4.82%*(365/90) = 19.54%

Two Roll-outs: CRUS and KO

Despite losing so much of my portfolio data when my old laptop crashed, I’ve continued trading activities.  I’ve got three posts queued up beginning with this one today – two roll-outs, including a position repair on KO; unwinding a March contract; and establishing two new positions – I’ll start with the roll-out post today.

Of the two positions, one is faring well – CRUS, even though it is something of a rule breaker in Rescue My IRA, since it doesn’t pay a dividend and it is not even ranked by S&P.  That makes it quite a bit more speculative than most stocks I pick for this account.

The second position is KO, a gem of a stock that is always held in high regard.  The company is going through transition struggles right now, and it has been an underperformer for Rescue My IRA.  Despite this, I decided to roll it out to a strike price that keeps me from losing money on it, even though it will not meet my goal of a 12% annualized return for positions in the account.

Here’s the analysis of the two positions, net of fees and commissions, and assuming I collect dividends through the holding periods.

CRUS

This is a 400-share position with a basis of $8,038.00, or $20.10 per share.  I have been selling $20 strikes and rolling them monthly.

Total covered call premiums:  $648.42

Total dividend payments (no dividend):  $0.00

Total stock gain at $20:  -$56.00

Total, absolute gain on the position:  $592.42

Total, absolute return percentage ($592.43/$8,038.00):  7.37%

Annualized total return percentage (held approx 105 days):  25.62%

KO

This is a 400-share position with a basis of $16,142.96, or $40.36 per share.  Since last July, I have been selling covered calls ranging from $38 to $40, and have mostly been out of the money while the stock flounders.  I decided to stay in and minimize stock losses, so this trade rolled out and up from a $38 to an Aug $39 strike – also ensuring I captured the March ex-dividend. If I get another chance for a roll-out, I’ll take it up to a $40 strike.

Total covered call premiums:  $937.36

Total dividend payments (forecast March and June ex-dividends):  $448.00

Total stock gain at $39:  -$560.96

Total, absolute gain on the position:  $824.40

Total, absolute return percentage ($824.40/$16,142.00):  5.11%

Annualized total return percentage (held approx 365 days):  5.11%

Belated February 2014 Results

(Note:  My laptop died at the end of February. I just ordered a replacement battery, but for now I am behind on posts because I don’t have access to my spreadsheet files and blog post templates. I am trying to partially catch up with February results today and a few recent posts, as I rebuild my spreadsheet files.  I’m hoping that the repair is just a replacement battery – if so, I’ll be sure to back up in the future!) 

Here we are again with the market incomprehensibly surging to new highs during global chaos and tepid economic news.  It reminds me that Warren Buffet and others have said that good news or bad, the stock market rises in the long term.  So even though I have only about 70 percent of Rescue My IRA in stocks right now, I’m staying in the market with this account and will continue to use my covered call approach.

Last month I wrote that I was beginning to move my sidelined $50K or so into stocks, because it looked like we were in the middle of a pullback.  The market didn’t continue in that direction, so I am again at just more than $50K in cash reserves, waiting for a pullback, and I will go in up to 90 percent when the time comes.  Despite the fact that cash reserves are high, Rescue My IRA closed at a record high value for February, while also achieving my goal of 1 percent monthly return between call premiums, dividends, and stock gains.

Two positions were closed last month, one unwound and the other called away:  SO and FB.   These generated more than $1,300 in stock gains, while the account generated another $600 in dividends and call premiums. 

Here is a summary of my Rescue My IRA statistics for February 2014, based the February 28, 2014 close.    

Account Status:

·         Total Account Value, 2/28/2014 Market Close:  $157,816.52 (vs. January close of $154,240.10)

·         Total Cash Reserve, 2/28/2014 Market Close:  $51,993.69

·         Core Stock Positions (as of 2/28/2014):   ABT (400 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)

Performance Metrics:
Option Premiums Collected (net, month of February):  $393.62 (0.25%)

Capital Gains Collected (net, month of February):  $1,313.18 (0.85 %)

Dividends Collected (recognized on the ex-date): $208.00 (0.13%)
Interest on Cash Reserve (laughable): $0.38
Total, Absolute Return:  $1,915.18 (1.24% absolute return, 14.87% annualized return)

Next Month To-dos:

March is a month where the dividends will be paltry as they were in February, and at the time of this writing, there’s not much to speak of forecast for stock gains either.  Assuming the two in-the-money positions KO and PSA are not assigned, Rescue My IRA will net $262.00 in dividends and may show a net loss on gains if I don’t repair the KO position.  The other call due this month is ABT, which will net nearly $300, but the loss on KO would offset this.

Looking ahead, there are four positions with April contracts, and two with May contracts.  To fix KO, I will likely have to set up an August contract; I also have PSA sitting out there with a September contract, so these are further out than I normally would like – but if the positions are profitable, I suppose I can’t argue with that.

Hopefully I’ll have my spreadsheets and other records backed up by the end of March, and can write a more effusive monthly post.  Until then, happy trading!

New Position: FB - third time!

(Note:  A bad thing happened.  My laptop died, and I don’t have access to my spreadsheet files and blog post templates. So I’m behind on posts; I owe my February 2014 results, and I’ve continued trading in the meantime. I probably won’t try to catch up, just post new trades as they come – as I rebuild my spreadsheet files.  I’m hoping that the repair is just a replacement battery – if so, I’ll be sure to back up in the future!) 

I continue to keep about a third of my account value in cash.  I need to average down my position values if this is going to keep up; the average is currently around $11,000 and needs to be between $8,000 and $10,000 in order for my portfolio model to work. I’d like to have between 12 and 16 positions going at any one time, but right now I only have nine in play.

Despite that, I took another bite of FB, again establishing a 200 share position.  This will make the third time with this stock…maybe I should just buy it and hold it instead of these entries and exits with the covered calls.  That is something to think about, but today, I’ll just post the position plan for these shares – net of fees and commissions.

FB

Transactions

Bought 200 shares at average share price $70.21 (total $14,041.00)
Sold 2 70 Mar wk 1s, rolled them to monthlies, and then rolled out to 75 May 2014 (See? I’ve been away)

Net Profit:

1) Options Income:  = $914.37
2) Dividend Income: No dividends on FB
3) Capital Appreciation if assigned at $75.00:  $941.00

Total Net Profit if assigned and dividend collected:  $1,855.37
Absolute Return on Investment: ($1,855.37/$14,041.00) = 13.21%
Annualized Return if Assigned (75 days):  13.21%*(365/75) = 64.31%