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!