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. 
Total stock gain:  $814.56

Total options income:   -$419.53 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Total dividends collected (not held through an ex-dividend date):  $0.00

Net Profit:
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%

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