April 2014 Results

When it began, April looked to be a challenging month for the Rescue My IRA portfolio.  For most of the early part of the year, the account value had been going sideways, and then it dropped as the month began.  By the end of the month, things had turned around and new market records were being set – and the account value rose above $160K for the first time.

I wrote last month about my worries regarding the large cash balance that I had been holding in reserve, and the fact that I was running the account with only 10 positions, where I believe the optimal portfolio is from 12 to 16 positions.  In the first case, I figured I was giving up some returns in order to manage risks – we’ll see if a market upturn has occurred and I will reduce the cash position by half to around 15%, if not, I will continue to hold 30% in reserve in the event of a correction.  In the second case, I did take steps to correct this issue, using some of the cash on hand to add two positions, so that I now have 12 positions; if I do take the step of reducing cash reserves I will be adding a couple of additional positions.

I unwound two positions this month, which accounts for the negative value on covered call premiums and the offsetting positive value on stock gains:  CAT and GLW.  I had that CAT position for a very long time and was glad to be moving on.

In the end, April was a good month for Rescue My IRA.  As I mentioned, the statement/market value of the account rose above $160K, and investing activities produced cash flows of more than $2K, or 1.3% on an absolute return basis – compared to my goal of a 1% absolute return.

Here is a summary of my Rescue My IRA statistics for April 2014, based the April 30, 2014 close.    

Account Status:

·         Total Account Value, 4/30/2014 Market Close:  $160,205.03 (vs. March close of $157,488.79)

·         Total Cash Reserve, 4/30/2014 Market Close:  $47,787.03

·         Core Stock Positions (as of 4/30/2014):  CRUS (400 shares), F (500 shares), FB (200 shares), GE (200 shares), INTC (300 shares), IP (200 shares), JPM (100 shares), KO (400 shares), MAT (200 shares), PFE (300 shares), PSA (100 shares), WIN (900 shares)

Performance Metrics:

·         Option Premiums Collected (net, month of April):  -$1,515.43 (-0.98 %)

·         Capital Gains Collected (net, month of April):  $3,468.99 (2.25 %)

·         Dividends Collected (recognized on the ex-date): $62.50 (0.04 %)

·         Interest on Cash Reserve (laughable): $0.30
Total, Absolute Return:  $2,016.36 (1.30% absolute return, 15.66% annualized return) 

Next Month To-dos:

As I look forward to May, the month will be better for dividends, with a forecast of five positions yielding $335.50, or 0.22%.  Of the five stocks (GE, INTC, IP, MAT, and PFE), only one, GE, has a May contract and it is currently in the money. I opened this position with a contract that spanned the ex-dividend date, and my position plan acknowledges the chance that the stock will be called away – even so, the annualized return on this 40-day trade will exceed 20%, much better than my goal of 12% annualized return.    

I have some work to do on my WIN position, which should have been a no-brainer, since it provided a 12% dividend yield when I bought it, and I could have just sat on it and made my goal.  Selling covered calls has proven a little more challenging on WIN than usual because there is not a lot of time premium in them, and I am finding it hard to adjust the contracts.  I may simply unwind this position, or roll it out and sit on the dividends for a quarter or two.

At the time of this writing, the GE contract is the only May position I have.  Between the forecast gain on that one of $41, and the $335 in dividends, I don’t foresee an active trading month, but we will see.  This may be a slow month, and may be the first time this year I didn’t churn up 1% in cash flows…we shall see.

That’s it for April.  Until next month, happy trading!

New Positions: INTC and MAT

After reviewing the results last month, I decided that I needed to improve the diversity of the Rescue My IRA portfolio – increasing the number of positions to somewhere between 12 and 16 stocks, which I consider a risk management strategy.  After the recent unwindings of CAT and GLW, I had the funds to begin implementing this strategy, and added three positions – INTC, JPM, and MAT – bringing the number of positions in the portfolio to 12.

Today’s post is about INTC and MAT; I’ll write about the JPM position soon.

INTC

Transactions

Bought 300 shares at average share price 26.57 (total $7,972.00)
Sold 3 27 May 2014 calls, and have subsequently rolled out to August.

Net Profit:

1) Options Income: $270.73
2) Dividend Income: $135.00

3) Capital Appreciation if assigned at $27.00:  $110.00

Total Net Profit if assigned and dividend collected:  $515.73
Absolute Return on Investment: ($515.73/$7,972.00) = 6.47%
Annualized Return if Assigned (133 days):  6.47%*(365/135) = 17.75%

MAT

Transactions

Bought 200 shares at average share price $40.18 (total $8,036.00)
Sold 2 40 May 2014 calls, and have subsequently rolled out to July.

Net Profit:

1) Options Income: $339.46
2) Dividend Income: $76.00

3) Capital Appreciation if assigned at $40.00:  -$54.00

Total Net Profit if assigned and dividend collected:  $361.46
Absolute Return on Investment: ($361.46/$8,036.00) = 4.50%
Annualized Return if Assigned (104 days):  4.50%*(365/104) = 15.79%

Rolling Out FB

This is the third time I have taken a position in FB in Rescue My IRA – I also had a 100 share position in my conventional trading account for a while.  Both of the previous IRA positions and the conventional position were quite lucrative.  I recognize that FB can be a volatile stock, but that membership and fan base offer so much potential for this company that I am willing to face the risks involved with this kind of stock.

This week’s market activity for FB is a fine example of the volatility that comes with this stock – it has had days where the stock price declined by a few dollars, and days where it rebounded and gained several dollars back.  My current position is out of the money by 20%; however, the position plan shows that it has already generated an estimated 10% plus on the capital invested in just 105 days (assuming the June call is assigned). 

I am content to hold the shares and continue using my covered call strategy until the stock is back in the $70 range, and perhaps beyond, all the way to $100 per share, if it goes there.

In the meantime, here’s the analysis of the current position, net of fees and commissions. 

FB

This is a 200-share position with a basis of $14,041.00, or $70.21 per share.  The current position has a $72.50 strike price and I am rolling monthly.

Total covered call premiums:  $1,055.35

Total dividend payments (no dividend):  $0.00

Total stock gain at $72.50:   $441.00

Total, absolute gain on the position:  $1,496.35

Total, absolute return percentage ($1,496.35/$14,041.00):  10.66%

Annualized total return percentage (held approx 105 days):  37.05%

Rolling Out PFE

There are two transactions still to report after my trading activities in Rescue My IRA this week:  rolling out PFE, which I’ll post today, and a roll-out on FB, which will follow.

Since the market has been trading sideways for most of the month of April, there haven’t been a lot of opportunities to adjust existing positions.  However, PFE did have a drop earlier this week, and the stock price approached the $31 strike price on my April covered call.  Rather than waiting to see if this would mean the option simply expired, I decided to do a roll-out to get a little more cash back in option premiums, and by doing so, I extended past the May ex-dividend date, putting that payment in play as well.

Now, the shares remain in the money, and the current price is far enough above the $31 strike that my call could be assigned and the holder of that contract would make a profit – so I’m considering this a probable early assignment.  If I manage to hold the shares through the current contract and collect the dividend, my annualized return is just more than 13%, as shown below.  If not, which is likely, the holding period will be shortened by ten days, and the returns go down to just less than 12% - that is close enough for me to count this one as a success, since my goal on these positions is 12% annualized.

Here’s the analysis of the PFE position, net of fees and commissions, and assuming I collect the May ex-dividend. 

PFE

This is a 300-share position with a basis of $9,263.00, or $30.88 per share.  I have been selling $31 strikes on the shares.

Total covered call premiums:  $276.73

Total dividend payments (including May):  $156.00

Total stock gain at $31:  $19.00

Total, absolute gain on the position:  $451.93

Total, absolute return percentage ($451.93/$9,263.00):  4.88%

Annualized total return percentage (held approx 135 days):  13.19%

Unwinding CAT - after 600 Days Held!

I have three transactions I need to post – on Monday I rolled out PFE and FB, and today I unwound CAT.  Since CAT is probably the longest held position in the history of Rescue My IRA, just about 600 days held, I think I will go ahead and post on this transaction first. I’ll post PFE and FB before the end of the week.

CAT was a true “dog of the Dow” for most of 2013, at times I considered dumping it at a loss.  Instead, I decided to manage it intensively, eventually working out a “position recovery plan,” which I posted in February, here:  http://rescuemyira.blogspot.com/2014/02/position-repair-cat.html

Since there was a $2.00 per share bump in the price today, I decided I would go ahead and unwind the position and take the money off the table.  I didn’t hold through the ex-dividend date I forecast for later this month, and I bought to close the $95 May covered call – so my final numbers are a little bit lower than the plan I wrote in February.  Still, the absolute return was over 14 percent, and the annualized calculation works out to almost nine percent – below the goal of 12% annualized, but still a gain, so it’s a win.

I’m going to find a position or two to put these proceeds right back to work.

Here is the final analysis of the CAT trade, net of commissions and fees:

CAT

Shares:

Bought 100 shares in August 2012 at an average price of $87.24, total position basis $8,723.99

Sold on unwind 100 shares at $10,303.27. 

Total stock gain:  $1,579.28

Options:

Total options income:   -$643.17 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $336.00

Net Profit:
Total Net Profit after Unwinding:  $1,272.11
Absolute Return on Investment: ($1,272.11/$8,723.99) = 14.58%
Annualized Return (600!!!! days):  14.58%*(365/600) = 8.87%

Two New Positions: INTC and MAT

Since adopting my recent cash reserve strategy, where I am holding about a third of the Rescue My IRA value in cash pending a market correction or clear sign of surging ahead, I’ve only managed to keep nine or 10 stock positions going.  My preference is to have 12 to 16, it’s my sense of what is the correct amount of risk reducing diversity in my portfolio.  Acting on this hypothesis, I took the proceeds of my recent GLW unwind transaction, and some residual cash that was at rest in the account, and opened positions with INTC and MAT.

Both are stocks I’ve held before in the account.  I opened May contracts for them – there are now six covered calls with May expirations in Rescue My IRA!  So that will be a busy month.

Here are the position plans for these shares – net of fees and commissions.

INTC

Transactions

Bought 300 shares at average share price $26.57 (total $7,972.00)
Sold 3 27 May 2014 covered calls for $127.24

Net Profit:

1) Options Income:  = $127.24
2) Dividend Income (May 5 ex-date): $67.50
3) Capital Appreciation if assigned at $27.00:  $110.00

Total Net Profit if assigned and dividend collected:  $304.74
Absolute Return on Investment: ($304.74/$7,972.00) = 3.82%
Annualized Return if Assigned (43 days):  3.82%*(365/43) = 32.45%

MAT

Transactions

Bought 200 shares at average share price $40.18 (total $8,036.00)
Sold 2 40 May 2014 covered calls for $280.48

Net Profit:

1) Options Income:  = $280.48
2) Dividend Income (May ex-date, but since I sold an in-the-money call, I’m not including it in the plan): $0
3) Capital Appreciation if assigned at $40.00:  -$54.00

Total Net Profit if assigned and dividend collected:  $226.48
Absolute Return on Investment: ($226.48/$8,036.00) = 2.82%
Annualized Return if Assigned (44 days):  2.82%*(365/44) = 23.38%

Two Trades: Rolling out CRUS and Unwinding GLW

As April began, there were three contracts expiring that I needed to plan for:  CRUS, GLW, and PFE.  I rolled out CRUS earlier in the week, and today I unwound GLW.  That leaves me with PFE facing April expiration, and the option ($31 strike) is in the money, so I will let the shares ride until there is no time value left and I can unwind – the transaction is not optimized yet, as it was with GLW today.

In February I last wrote about my GLW position, which was comprised of 600 shares, bought in two lots:

http://rescuemyira.blogspot.com/2014/02/glw-adding-on-and-rolling-out.html

At the $18 strike, I stood to take a small capital loss, but I could collect the dividend and a nice call premium.  Today I was watching the stock closely and saw an opportunity to make an unwind trade that took back some of the capital loss, improving my overall return by a small amount.  I pulled the trigger, and doing so upped the absolute return from 3.19% to 3.36%, almost a full quarter of a point – it doesn’t always work this way, in fact it usually results in a reduction of a few decimals.

In any case, here are the results of the two trades – the CRUS roll-out and the GLW unwind.  As always, results are net of commissions and fees. 

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:  $868.40

Total dividend payments (no dividend):  $0.00

Total stock gain at $20:  -$56.00

Total, absolute gain on the position:  $812.40

Total, absolute return percentage ($812.40/$8,038.00):  10.11%

Annualized total return percentage (held approx 135 days):  27.33%

GLW

Shares:
As noted in the linked post above, this was a 600 share position bought in two lots, with an average price per share of $18.04 and total position basis $10,823.00

Sold on unwind 600 shares at $12,712.71. 

Total stock gain:  $1,889.71

Options:

Total options income:   -$1,585.69 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $60.00

Net Profit:
Total Net Profit after Unwinding:  $364.02
Absolute Return on Investment: ($364.02/$10,823.00) = 3.36%
Annualized Return (62 days):  3.36%*(365/62) = 19.80%