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.
Tuesday, June 24, 2014
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
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.
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.
income: -$166.64 (By unwinding, I exchanged the option premium
for additional stock gains in this trade)
collected: $448.00 – if there was a highlight to this trade, it would be
the healthy dividends I received during the holding period.
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%