New Position: DIS

A year or two ago I put together a trade on DIS – it is a four-star rated Dow stock that pays an annual dividend.  The earlier trade was a successful one for Rescue My IRA, so I decided to start a new position in DIS after the series of unwind trade I had just completed.  That’s even despite the double-digit gains this stock has already recorded year-to-date.

Unless the shares are called away, my plan will be to roll the shares out monthly until I collect the dividend, or to write a call that will be assigned in December during a prospective dividend run.

Here is a summary of the position plan for DIS, net of commissions and fees.

DIS

Transactions

Bought 100 shares at average share price $85.78 (total $8,577.93)
Sold 1 $87.50 Aug 2014 covered call

Net Profit:

1) Options Income:  = $83.74
2) Dividend Income (December ex-dividend): $0.00
3) Capital Appreciation if assigned at $87.50:  $154.07

Total Net Profit if assigned and dividend collected:  $237.81
Absolute Return on Investment: ($237.81/$8,577.93) = 2.77%
Annualized Return if Assigned and Dividend Collected (30 days):  2.77%*(365/30) = 33.73%

Unwinding F

It seems that July has turned into Rescue My IRA’s month of threes – after three roll-out and up transactions, I recently completed a third unwind transaction, including the one I am posting on today, for F.  I have three transactions I need to post – on Monday I rolled out PFE and FB, and today I unwound CAT.  After starting the month with 15 positions in play, Rescue My IRA now has 12 as July comes to a close – I’ll have one more post to put up about a new position before I post monthly results.

Meanwhile, here is the final analysis of the F trade, net of commissions and fees:

F

Shares:

Bought 500 shares in March 2014 at an average price of $15.32, total position basis $7,662.00

Sold on unwind 500 shares at $8,862.85. 

Total stock gain:  $1,200.85

Options:

Total options income:   -$690.56 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $62.50

Net Profit:
Total Net Profit after Unwinding:  $572.79
Absolute Return on Investment: $572.79/$7,662.00) = 7.48%
Annualized Return (135 days):  7.48%*(365/135) = 20.21%

Unwinding MAT for a Rare Net Loss

Generally speaking, when I select stocks for Rescue My IRA they meet the following criteria:  ranked as 4- or 5-stars by S&P, S&P 500 Index stocks, dividend yield ranging from 3 to 5 percent.  Sometimes I will also add a technical criterion by checking the 52-week trading range or the Bollinger Bands, but I am less consistent about that.  So, when MAT was recent downgraded to a 2-star stock, it fell well outside of my typical stock pick universe, so I took the unusual step of divesting the 200-share position.

I opened the position in April with a basis of around $40, and sold covered calls with $40 strikes, rolling them out monthly.  Earlier this week, I bought to close my October 2014 contracts and sold the stock at around $35 per share – but I had collected premiums and dividends, so the stock loss was mostly offset. 

This was only the fourth time or so in the three-year history of Rescue My IRA that I took such a loss; when I first started the account I might have moved more quickly on some shares when they were downgraded from 4-stars to 3-stars, but I have learned that patience generally pays off in those cases.  This time, my pick went from 4-stars to 2-stars, and the prospect of a long road ahead simply wasn’t appetizing.

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

MAT

Shares:

Bought 200 shares in April 2014 at an average price of $40.18, total position basis $8,036.00

Sold on unwind 200 shares at $7,133.44. 

Total stock loss:  -$902.56

Options:

Total options income: $401.95

Dividend:

Total dividends collected:  $76.00

Net Profit:
Total Net Loss after Unwinding:  -$424.61
Absolute Return on Investment: -$424.61/$8,036.00) = -5.28%
Annualized Return not calculated on the holding period of 110 days.

Unwinding T

Last week I unwound the 200-share Rescue My IRA position in T after collecting the July dividend and prior to its August expiration date - for background, I treat dividends as collected if I hold the shares on the ex-dividend date. I had purchased the shares in June and sold an August $35 covered call against them, but with the Delta on that contract moving past 1.0 last week I took advantage of the opportunity for an early close out of the trade.

Here’s the final analysis of the T trade, net of commissions and fees:

T

Shares:

Bought 200 shares in June 2014 at an average price of $35.09, total position basis $7,018.98.

Sold on unwind 200 shares at $7,294.95, total stock gain:  $275.87

Options:

Total options income:   -$223.01 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $92.00

Net Profit:
Total Net Profit after Unwinding:  $144.86
Absolute Return on Investment: ($144.86/$7,018.98) = 2.06%
Annualized Return (35 days):  2.06%*(365/35) = 21.52%

TGT: Rolling Up and Out

This may be the only time I ever posted three trades in a row where I was doing the same kind of adjustment on the positions.  On Thursday, I took advantage of the market hiccup to roll my TGT position out a month and up a strike price, just as I did earlier in the week for AAPL and IP. 

I moved the TGT contract from an August weekly at a strike price of $58.50 out to the regular September contract at a strike price of $60.  The trade was nearly a breakeven on premiums, setting me back about $7 in covered call premiums given up, but I’ve assured myself of a chance to receive the August dividend, and I have added the possibility of $1.50 per share in stock gains.  Plus, the estimated annual return is almost 24% for a two month trade – double my goal of 12% annualized.

Here’s the analysis of the TGT position as of this most recent trade, net of fees and commissions, and assuming I collect dividends through the holding period.

TGT

This is a 100-share position with a basis of $5,839.99, or $58.40 per share.  I set the position up to trade weeklies, but this trade rolled it out to a monthly basis.

Total covered call premiums:  $92.23

Total dividend payments (August ex-dividend):  $52.00

Total stock gain at $60:  $142.01

Total, absolute gain on the position:  $286.24

Total, absolute return percentage ($286.24/$5,839.99):  4.90%

Annualized total return percentage (held approx 75 days):  23.85%

IP: Rolling Out and Up

There was an unusual distribution on my IP shares – they spun off a part of the company and received some cash.  All of that led to an extra dividend in the form of three shares on my 200-share position, and a small amount of cash.  Making it that much more complex was the adjustment to the covered calls I’d written – I had to hold all of those items until expiration.

I resolved to streamline the position by rolling out and rolling up, and put the strategy into action as soon as regular options became available again.  I was able to buy to close the adjusted July $49 option, sell the three shares of the new company, and sell the August $50 option with a net cost of four bucks, improving my total returns to nearly 12% annualized in the process.

Pretty complication transaction all in all, but sometimes that is the way it is.   

Here’s the analysis of the total return on the IP position to date, net of fees and commissions, and assuming I collect dividends through the holding period.

IP

This is a 200-share position established in May 2013, with a basis of $9,592.00, or $47.96 per share.  I have sold strikes ranging from $47 to $50 and rolling them monthly during the holding period.

Total covered call premiums:  $583.38

Total dividend payments (includes the spun-off shares):  $428.08

Total stock gain at $50:  $390.00

Total, absolute gain on the position:  $1,401.46

Total, absolute return percentage ($1,401.46/$9,592.00):  14.61%

Annualized total return percentage (held approx 455 days):  11.72%

AAPL - Rolling Out and Up

Last week I rolled the AAPL position out from August to September, and up from a $95 strike price to a $97.50 strike price.  When I established the position back in June, I expected that I would just work with it on weeklies and then have the position called away quickly, but it has turned out to be more of a mid-term opportunity, now forecast to run three months or so.

And that’s okay by me – if the position goes the distance to the September contract, it will wind up as a hat trick, with earnings from call premiums, dividends, and a stock gain.  It also will have generated a 6% return over just about 90 days, which works out to 26% annualized – far exceeding my goals for a 12% annualized return.

Here’s the analysis of the position, net of fees and commissions, and assuming I collect dividends through the September expiration.

AAPL

This is a 100-share position acquired post-split, with a basis of $9,380.99, or $93.81 per share.  I was selling $95 strikes and rolling them weekly, then monthly, before the roll-up to $97.50.

Total covered call premiums:  $211.46

Total dividend payments (August ex-dividend):  $47.00

Total stock gain at $97.50:  $351.01

Total, absolute gain on the position:  $609.47

Total, absolute return percentage ($609.47/$9,380.99):  6.50%

Annualized total return percentage (held approx 91 days):  26.06%

Rescue My IRA June 2014 Results

As I begin writing my monthly results post, the first thing that comes to mind is that I wrote my May post from the porch of the John Dougherty House in Mendocino, CA (link here: http://jdhouse.com)  , where we were vacationing.  That put me in a good frame of mind for the month of June – but the market also conspired to cheer me up.  The bull market’s run is not over, so I was able to generate a return of 1% of the account value last month, while also taking some steps to improve diversification in Rescue My IRA and increasing the amount of cash reserves I’m holding to more than 20% of the account value – so June was a very good month. 

The highlight of the month was four stock trades, all of which resulted in stock gains.  I unwound three positions:  INTC, KO, and SBUX, which is why the returns from call premiums are negative – of course the stock gains exceed that negative.  The fourth trade was WIN, which was called away on the ex-dividend date. 

That’s a shame, because when I set up the position, WIN had an estimated annual yield of more than 12%.  I did slightly better, on an annualized basis, earning more than 23%, because of covered call premiums and stock gains.  The WIN position will likely show up as a top 5 trade in my year-end posts…but then again, I could be on a streak and we’ll leave that one in the dust! (summary post on the WIN trade is here:  http://rescuemyira.blogspot.com/2014/06/called-away-on-ex-date-win.html)

I’m happy with the portfolio at the moment, with 14 positions and about 25% in cash reserves.  I can forecast a decent amount of trading activities ahead for both July and August – enough to keep things interesting.  And I think the bull market has legs for a bit longer, even though we’ve settled into this low volatility stage that is making good covered call trades hard to find.

Finally, here is the monthly summary of Rescue My IRA statistics for June, based the June 27, 2014 close.    

Account Status:

·         Total Account Value, 6/27/2014 Market Close:  $163,508.74 (a new high, vs. May close of $161,404.45)

·         Total Cash Reserve, 6/27/2014 Market Close:  $43,735.05

·         Core Stock Positions (as of 6/27/2014):  AAPL (100 shares), CNP (300 shares), CRUS (400 shares), F (500 shares), FB (200 shares), GE (300 shares), IP (200 shares), JPM (100 shares), KRFT (100 shares), MAT (200 shares), PFE (300 shares), PSA (100 shares), T (200 shares), TGT (100 shares)

Performance Metrics:

·         Option Premiums Collected (net, month of June):  -$1,299.84 (-0.84 %)

·         Capital Gains Collected (net, month of June):  $2,642.31 (1.71 %)

·         Dividends Collected (recognized on the ex-date): $328.00 (0.21 %)

·         Interest on Cash Reserve: $0.30

·         Total, Absolute Return:  $1,670.77 (1.08% absolute return, annualized return 12.98%) 

Next Month To-dos:

Looking forward to July, five positions are due to go ex-dividend, yielding an estimated $325.00, or 0.21% for the month – that’s down slightly from the June estimate.  Four of the five are in the money – F, JPM, PFE, and T; while KRFT is just out of the money.  Except for JPM, which is a September covered call, the other four positions are on August contracts, so the likelihood of having these positions called away is about even, depending on how they fare this month. 

There are two July contracts on the books: the 200-share IP position, in the money with a $49 strike, and my 200-share MAT position, just out of the money with a $40 strike.  If these shares are assigned at expiration, the total stock gains will be $136.00, or 0.09% for the month.

Since dividends and forecast stock gains only yield 0.30%, I’ll have to make up some returns from covered call premiums in order to meet my goal of 12% annualized return this month.

That’s it for the June Rescue My IRA post – all in all, it was a pretty good month.  Until next month, happy trading!