Called Away on the Ex-date: WIN

Earlier this week, I had finally achieved what I regard as an optimal balance between investments in stock positions and cash reserves just now – about 20% of the Rescue My IRA account was held in cash, and there were 15 stock positions.  That arrangement changed yesterday when my WIN position was called early on the stock’s ex-dividend date.

I added this position in the spring with the goal of adding a high-dividend stock (at the time, the calculated dividend yield on WIN was over 12%) that I could sell covered calls against to add to the returns.  I bought 1,000 shares a few days before the March ex-dividend date, but 100 shares were called away at that time, leaving me with 900 shares.  I rolled these out to a $8 May expiration covered call, and then rolled them up and out to a $9 November contract.

As usually happens, I traded away the cash I’d earned on covered calls for the promise of downstream stock gains, but I also figured I would collect at least one more dividend check before the shares were called.  So, overall, the position would meet my objective of a 12% return.

With the shares all called away at $9 yesterday, I have the capital back almost 150 days early, and although I won’t get those fat dividend checks, I did earn a nice return of nearly 7% on this trade during a 105 day holding period.  That works out to better than 24% annualized – it might just turn out to be one of my best trades so far this year based on that metric!

I guess I will get to work early next week on finding a new position to replace WIN. In the meantime, here is the final analysis of the WIN trade, net of commissions and fees:

WIN

Shares:

Bought 1,000 shares in at an average price of $8.12, total position basis $8,117.00

Early calls on 100 shares and then 900 shares, sold for a net of $8,874.00. 

Total stock gain:  $757.00

Options:

Total options income:   -$392.01 (When I rolled the stock up from an $8 to $9 covered call, I traded some of the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $175.00 – I collected one payment on 9 lots of the stock

Net Profit:
Total Net Profit after early call:  $539.99
Absolute Return on Investment: ($539.99/$8,117.00) = 6.65%
Annualized Return (105 days):  6.65%*(365/105) = 23.13%

New Positions: CNG and TGT

I have had two goals in the Rescue My IRA account this year – the first has been to maintain more cash on reserve, with my current goal set at 20% of the account value, and the second is to further diversify by maintaining between 12 and 15 positions with an average value of less than $10,000.

With the KO position unwound, I set out to identify a new position on line with these objectives immediately, so that I could get the money back to work.

I’ve mentioned the selection criteria I am using these days in passing in earlier posts:  stock choices must be rated 4- or 5-stars by S&P, they need to pay a dividend of between 3% and 5% annually, and I need to be able to forecast a 12% annualized return, comprised of option premiums, dividend payments, and stock gains, with the first transaction.

Actually, I identified two new positions that met these criteria:  CNP and TGT.  After I’d established the new positions, Rescue My IRA has 15 positions in play, and the cash reserve is steady at 25%.  I’m ready to ride out the summer, and the account should be able to hold its own for the balance of the year. 

Here are summaries of the position plans for each of the two new positions, net of commissions and fees.

CNP

Transactions

Bought 300 shares at average share price $24.70 (total $7,411.00)
Sold 3 $25 Aug 2014 covered calls

Net Profit:

1) Options Income:  = $184.24
2) Dividend Income (August ex-dividend): $71.25
3) Capital Appreciation if assigned at $25.00:  $71.00

Total Net Profit if assigned and dividend collected:  $326.49
Absolute Return on Investment: ($326.49/$7,411.00) = 4.41%
Annualized Return if Assigned and Dividend Collected (60 days):  4.41%*(365/60) = 26.80%

TGT

Transactions

Bought 100 shares at share price $58.40 (total $5,839.99)
Sold $58.50 Aug wk 1 2014 covered call

Net Profit:

1) Options Income:  = $98.74
2) Dividend Income (August ex-dividend): $52.00
3) Capital Appreciation if assigned at $58.50:  -$7.99

Total Net Profit if assigned and dividend collected:  $142.75
Absolute Return on Investment: ($142.75/$5,839.99) = 2.44%
Annualized Return if Assigned and Dividend Collected (45 days):  2.44%*(365/45) = 19.83%

Unwinding KO

S&P had downgraded KO from a four-star pick to a three-star pick back in February.  Since I do try to limit the positions I set up for Rescue My IRA to four- or five-star S&P choices, this event meant I would move KO into a category of attentive management going forward: I would look for opportunities to unwind and exit the position early without taking a loss, and in the worst case hold it for the long term until the stock finally came back. 

It’s a similar strategy to the one I followed for CAT, a position I ultimately held for almost two years before exiting.  Here’s the post from April when I finally closed that position:  http://rescuemyira.blogspot.com/2014/04/unwinding-cat-after-600-days-held.html

Of course, there are exceptions to my rule about choosing four-star S&P stocks.  I am holding three positions rated at three-stars in the portfolio right now:  AAPL, CRUS, and FB.  All offer good returns on their covered call premiums, and I have faith in their ultimate recovery, so I'm in no rush to unwind them.

Yesterday, the premium for the 39 Aug 2014 contract I had on KO approached the additional value in the stock above my strike price, so I decided to unwind the position two months early.  I closed an underperforming position after 300 days, pulling out a nearly 5% return, which annualized at slightly more than that.  At least I beat the typical return on a savings account, but this is less than my goal of a 12% annualized return on investments in Rescue My IRA.

Here are the details on the KO position, net of fees and commissions.

KO

Shares:

Bought 400 shares in two lots, at an average price of $40.36, total position basis $16,142.96

Sold on unwind 400 shares at $16,612.63. 

Total stock gain:  $469.67

Options:

Total options income:   -$166.64 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $448.00 – if there was a highlight to this trade, it would be the healthy dividends I received during the holding period.

Net Profit:
Total Net Profit after Unwinding:  $751.03
Absolute Return on Investment: ($751.03/$16,142.96) = 4.65%
Annualized Return (300 days):  4.65%*(365/300) = 5.66%

New Positions: KRFT and T

After I unwound the INTC and SBUX positions this month, I decided to further diversify the account and continue to average down the individual position values by staying with 14 positions.  These are risk management strategies – I also decided to maintain my cash reserve at around 20 percent.  So, as the summer begins, I think Rescue My IRA is in a good place to ride out the potential doldrums that always seem to be there at this time of year.

Earlier this month I posted about the first of three new positions:  AAPL.  I added positions in KRFT and T this week, and those are the topics of this post.  The market is rolling along at record highs, and it is a bit of a challenge to find many covered call opportunities that meet my return objectives of 12 percent annualized – I’m solving this by going out a few months so that I can maintain my choices among dividend payers and S&P 4-star selections. 

Here are the details of the two new positions, net of fees, assuming they are called away in the current contract, and including dividends collected through the holding period.

KRFT

Transactions

Bought 100 shares at average share price $59.32 (total $5,932.00)
Sold 1 $60 Sep 2014 for a net of $114.74

Net Profit:

1) Options Income:  = $114.74
2) Dividend Income (July ex-date): $52.50

3) Capital Appreciation if assigned at $60.00:  $50.00

Total Net Profit if assigned and dividend collected:  $215.24
Absolute Return on Investment: ($215.24/$5,932.00) = 3.63%
Annualized Return if Assigned (90 days):  3.63%*(365/90) = 14.72%

T

Transactions

Bought 200 shares at average share price $35.09 (total $7,018.98)
Sold 2 $35 Aug 2014 for a net of $116.49

Net Profit:

1) Options Income:  = $116.49
2) Dividend Income (July ex-date): $92.00

3) Capital Appreciation if assigned at $50.00:  -$36.98

Total Net Profit if assigned and dividend collected:  $171.51
Absolute Return on Investment: ($171.51/$7,018.98) = 2.44%
Annualized Return if Assigned (60 days):  2.44%*(365/60) = 14.86%

Unwinding INTC

I unwound my 27 Aug covered call for INTC yesterday.  The stock was in the money and there wasn’t much point in letting the investment just sit there for another two months with little upside.  It is the earliest I’ve had the opportunity to close out an in the money position – now I’ll move on to finding a new stock to roll the funds into.

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

INTCShares:

Bought 300 shares in April at an average price of $26.57, total position basis $7,972.00

Sold on unwind 300 shares at $8,992.80. 

Total stock gain:  $1,020.80

Options:

Total options income:   -$685.02 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $67.50

Net Profit:
Total Net Profit after Unwinding:  $403.28
Absolute Return on Investment: ($402.38/$7,972.00) = 5.06%
Annualized Return (days):  5.06%*(365/73) = 25.29%

New Position: AAPL

When those MINI options were first issued, I looked at trying to set up a position in GOOG or AAPL, but I just found the process too tedious for a 10-share trade.  Now that AAPL has completed a 7-for-1 split, I bought a 100-share lot and sold a covered call.  If GOOG ever splits, I may jump in there on that one too!

My first AAPL covered call last week was a two-day trade for a weekly $93.93 strike.  That one expired unexercised, so this week I have rolled out to a traditional July monthly at a $95 strike – I’ll keep rolling along as the situation permits.

Like FB, AAPL doesn’t fit all of my trading criteria: I usually trade on S&P 4- or 5-star rated shares in order to take advantage of their research, but AAPL is a 3-star rated stock, like FB.  Unlike FB, AAPL does pay a dividend with the next ex-date in August, so it has that going for it.  AAPL has its lovers and haters, I’m happy to be on the bandwagon for this fine company for however long that makes sense.

Here are the details on my AAPL trade, net of fees and commissions. 

AAPL

Transactions

Bought 100 shares at average share price $93.81 (total $9,380.99).
Current covered call is a $95 July 2014; I will roll monthly as long as I hold the shares.

Net Profit:

1) Options Income:  = $143.48
2) Dividend Income: No dividend forecast until August
3) Capital Appreciation if assigned at $95.00:  $101.01

Total Net Profit if assigned and dividend collected:  $244.49
Absolute Return on Investment: ($244.49/$9,380.99) = 2.61%
Annualized Return if Assigned (32 days):  2.61%*(365/32) = 29.73%

Unwinding SBUX

Coming on the heels of yesterday’s post, about two underperformers in the Rescue My IRA portfolio, today I am writing about unwinding SBUX with good results after only 38 days.

I drink a lot of coffee, and I’m at SBUX every work day, plus that is the brand we drink at home. So I figured, Warren Buffet says buy what you know – and when the stock received a 4-star rating from S&P, it made it to my list of potentials. 

I set the position up in May with a June contract, collected a dividend, and unwound it last Thursday, a week before the contract expired.

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

SBUX

Shares:

Bought 100 shares in May 2014 at an average price of $70.68, total position basis $7,068.00

Sold on unwind 100 shares at $7,462.84 

Total stock gain:  $394.84

Options:

Total options income:   -$140.51 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $28.00

Net Profit:
Total Net Profit after Unwinding:  $282.33
Absolute Return on Investment: ($282.33/$7,462.00) = 3.99%
Annualized Return (38 days):  3.99%*(365/38) = 38.37%

Rolling out GE and PFE

Seems like I haven’t posted a few of my past trades, but then again, I didn’t trade for a couple of weeks while I was away on vacation.  By the way, thanks for 150 views of my monthly results for May! Today, I’ll put up the results of two roll-outs:  GE and PFE.

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

GE

This is a 300-share position with a basis of $7,901.99, or $26.34 per share.  I started out by selling covered call $26 strikes, but rolled up to $27 and continue selling them. The current contract expires in September 2014. Even though I am forecasting a hat trick, with positive income from all three sources, this position is underperforming my goal of 12% annualized for total return.

Total covered call premiums:  $98.72

Total dividend payments:  $132.00

Total stock gain at $27:  $180.01

Total, absolute gain on the position:  $410.73

Total, absolute return percentage ($410.73/$7,901.99):  5.20%

Annualized total return percentage (held approx 180 days):  10.54%

PFE

This is a 300-share position with a basis of $9,256.00, or $30.85 per share.  This is a stock where I have gotten caught in a downgrade.  In the past I might have sold to exit immediately, but I decided to stay in and minimize stock losses – I’ll continue to manage it closely.  The current forecast is for a close to overall breakeven result with the $29 Aug 2014 contract.   

Total covered call premiums:  $635.20

Total dividend payments:  $156.00

Total stock gain at $29:  -$574.00

Total, absolute gain on the position:  $217.20

Total, absolute return percentage ($217.20/$9,256.00):  2.35%

Annualized total return percentage (held approx 235 days):  3.64%

Rescue My IRA - May 2014 Results

Mary and I were away on vacation for the last week of May, and it had turned out to be a fairly slow month for trading in Rescue My IRA in any case, so I’m posting for the first time in a few weeks. 

The statement value of the account has reached an all-time high (so far!) of more than $161K, but on “cash flow” terms, May was a net negative, although not by much.  I rolled out and up several positions, trading cash on buy-to-close premiums for longer term stock gains.  Also, no positions were called away during May, so there were no gains to offset the cost of the options premiums I closed.

With the vacation and other distractions, I consider May 2014 a holding pattern month.  June is looking better already, just three days in.  Here is a summary of my Rescue My IRA statistics for May 2014, based on the May 29, 2014 close.    

Account Status:

·         Total Account Value, 5/29/2014 Market Close:  $161,404.45 (vs. March close of $160,205.03)

·         Total Cash Reserve, 5/29/2014 Market Close:  $39,180.45

·         Core Stock Positions (as of 5/29/2014):  CRUS (400 shares), F (500 shares), FB (200 shares), GE (300 shares), INTC (300 shares), IP (200 shares), JPM (100 shares), KO (400 shares), MAT (200 shares), PFE (300 shares), PSA (100 shares), SBUX (100 shares), WIN (900 shares)

Performance Metrics:

·         Option Premiums Collected (net, month of May):  -$741.14 (-0.41 %)

·         Capital Gains Collected (net, month of May):  $0.00 (0.00 %)

·         Dividends Collected (recognized on the ex-date): $319.50 (0.21 %)

·         Interest on Cash Reserve: $0.30
Total, Absolute Return:  -$421.34 (-0.27% absolute return, annualized return not calculated) 

Next Month To-dos:

Looking forward to June, four positions are due to go ex-dividend, yielding an estimated $553.00, or 0.36% for the month.  Three of the four are in the money – KO, PSA, and WIN – while one is not – GE.  However, all of the in the money positions are in back months – August through November – so the likelihood of having these positions called away is low.

There is only one June contract on the books: the 100-share SBUX position.  The option is a $72.50 covered call and the shares are in the money.  If it is called away, I will record a sock gain of $182.00, adding to the month’s proceeds.

During the spring I took steps to further diversify this portfolio, moving from 10 positions to 13.  I am considering the addition of one more position, totaling 14, and if I take this step, I will probably ratchet down the cash reserve portion of the account to 20% of the statement value.  That will give me about $7K to play with on that trade.

Well, that’s it for May, not the most exciting month for Rescue My IRA.  So, until next month, happy trading!