Diversion

Wednesday, June 25, 2014

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%

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