Rescue My IRA January 2015 Results

January saw some volatility in the markets, but it seems that a trading band has formed for now. This is a good situation for a covered call trader – my plan is to continue taking call premiums, dividends, and a capital gain here and there in order to meet my Rescue My IRA goal of 1% return per month and 12% annualized.  Compared with this goal, January’s results were okay, but did not perform up to the benchmark – the net of $666.85 in income works out to 0.40% return for the month, or 4.77% annualized. 

The bulk of this underperformance can be attributed to one event – the unwind I did on my WIN position. I wrote a post on that position here; basically, I failed at due diligence and sold the shares for a loss, although that was somewhat offset by call premiums and dividends.  If that loss hadn’t occurred, the results would have been improved by almost $1,400 – easily meeting my goals for this account. 

After my annual results post, which you can find here and follow-up here, there was a good dialog amongst connections on the Yahoo “Just Covered Calls” board and on the Google+ “StockOptions Traders” community about how I calculate my results.  Based on those insights, I’ve settled on this equation to explain how my account value changes every month:

(new value) = (old value) + (dividends) + (call premiums) + (capital gains) + (unrecorded gains/losses)

Essentially, that last variable is a complex one, which I why I haven’t spent a lot of time on working out the math – maybe I should, so that would be a future topic.  It boils down to this:  because valuations for both stocks and options are based on the market at any given time, the change in that last variable is not predictable, and in any given month Rescue My IRA could see an increase or a decrease in the account value, despite how well or poorly I do at the other three variables. I’m comfortable with that – and it leads me to the conclusion that I should focus on the ones I can do something about.

Finally, here is the monthly summary of Rescue My IRA statistics for January 2015, based on the market close on January 30. 

Account Status:

·         Total Account Value, 1/30/2015 Market Close:  $166,116.66 - down from the December 2014 close of $167,659.68)

·         Total Cash Reserve, 1/30/2015 Market Close:  $34,186.66, compared to December end $38,484.88.

·         Core Stock Positions (as of 1/30/2015):  BA (100 shares), CA (300 shares), CNP (400 shares), COP (100 shares), CRUS (400 shares), DOW (200 shares), EMC (400 shares), FB (100 shares), GE (400 shares), GM (400 shares), HAL (200 shares), JPM (100 shares), QCOM (100 shares), T (400 shares)

Performance Metrics:

·         Option Premiums Collected (net, month of January):  $1,050.91 (0.63%)

·         Capital Gains Collected (net, month of January):  -$572.36 (-0.34%)

·         Dividends Collected (recognized on the ex-date): $188.00 (0.88%)

·         Estimated Interest on Cash Reserve: $0.30

·         Total, Absolute Return:  $666.85 (0.40% absolute return, annualized return

4.77%) 

Next Month To-dos:

In February, there are four positions with contracts expiring:  BA, CA, FB, and HAL.  At the time of this writing, only BA is in the money, although the volatility of FB suggests it will be ITM during the month, and thus potentially called away; CA and HAL are likely candidates for roll-outs.  If all are called away, there is the possibility of $1,108.31 in capital gains, or 0.66% return; if only BA and FB are called away, the gains would be $656.30, or 0.39%; and if only BA is called away, the gain is $545.00, for a return of 0.33%.

February’s dividend forecast is better than January’s, where I collected on T only:  BA, CA, CNP, and COP will have ex-dividend dates during the month.  Total estimated yield is $338.00, or 0.20%, but adjusting for the likely assignment of BA the amount adjusts to $247.00, or 0.15%. 

Considering the most likely scenario of BA being called away, the resulting capital gains and dividend payments result in an estimated monthly return of $892.00, or 0.48%.  That has been my typical experience for most of 2014 and continuing until now – about a half of a percent from those sources.  In February, if FB is also called away, the return will be a little higher, totaling $903.30 and 0.54%.  To meet my goal of 1% per month, I’ll need to sell about $700 worth of premiums – and will have a good start from the likely roll-outs on CA and HAL. 

Happy trading in February – until next month, all the best!