Saturday, September 6, 2014

New Position: EMC

After the August hiatus, I’m going to work on getting back into regular posts here on Rescue My IRA – I opened a new position last week with EMC, so that will be where it all starts.  Also, while I’m still ecstatic with the covered call approach that I have been using for the last three years, I had a look at my trading plan and realized it is time for an update, so I’ll be taking that on over the next few weeks.

When I chose EMC, I used the typical selection criteria for Rescue My IRA stock choices: ideally rated 4- or 5-stars by S&P, dividend payers with a yield of 3% and 5% annually are preferred, and I need to be able to forecast a 12% annualized return, comprised of option premiums, dividend payments, and stock gains, with the first transaction.  This position falls short on the dividend account but met the other criteria.

September looks to be an active month in the account – I have six in the money covered calls with September expirations, so it will be a challenge to maintain the portfolio with 12 to 15 active trades.  EMC was meant to be a selection that would help me bridge a busy month.

Here is the summary of my EMC position plan, net of commissions and fees:



Bought 300 shares at average share price $29.50 (total $8,851.00)
Sold 3 $30 Oct 2014 covered calls

Net Profit:

1) Options Income:  = $133.24
2) Dividend Income (September ex-dividend): $34.50
3) Capital Appreciation if assigned at $30.00:  $131.00

Total Net Profit if assigned and dividend collected:  $298.74
Absolute Return on Investment: ($298.74/$8,851.00) = 3.38%
Annualized Return if Assigned and Dividend Collected (45 days):  3.38%*(365/45) = 27.38%

If the shares are called away on the ex-dividend date, the absolute return drops to 2.99%, but the annualized return increases to 36.32%!

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