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.
Thursday, July 24, 2014
Unwinding MAT for a Rare Net Loss
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 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.