Thursday, July 24, 2014

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:


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

Total options income: $401.95

Total dividends collected:  $76.00

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

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