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%