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.
Friday, September 19, 2014
Unwinding the ETF: SPY
Taking advantage of a
couple of up days in the market, I unwound the ETF SPY position a couple of
days before the September call expired.
Even though it requires two transactions – you have to buy the covered
call to close it, and then sell the shares – I end up saving about $5.00 over
the cost of the paperwork transaction when my calls are assigned. That can boost the return on a transaction in
a way I can quantify, while the opportunity cost of having the funds ready to
reinvest earlier than they might have been otherwise can’t always be quantified
and measured, even though it is a benefit.
The SPY trade was a
short-term one that was in play for 49 days, earning an absolute return of 2% -
that works out to an annualized return of 15% - exceeding my goals for trades,
which is to generate an annualized return of 12%. The fact that the average annualized return
is trending down towards my goal suggests that it’s time to keep some money on
the table, waiting for a market pullback or correction – so I’ll spend a few
days thinking about this strategy before putting the SPY funds back to work.
Here is the final
analysis of the SPY trade, net of commissions and fees:
Bought 100 shares in August
2014 for a total position basis $19,321.00
Sold on unwind 100
shares at $20,135.56.
income: -$419.53 (By unwinding, I exchanged the option premium
for additional stock gains in this trade)
collected (not held through an ex-dividend date): $0.00
Total Net Profit after Unwinding: $395.03
Absolute Return on Investment: $395.03/$19,321.00) = 2.04%
Annualized Return (49 days): 2.04%*(365/49) = 15.23%