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.
Friday, June 27, 2014
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
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:
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.
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
collected: $175.00 – I collected one payment on 9 lots of the stock
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%