Sunday, March 1, 2015

Rescue My IRA: February 2015 Results

After trading in a range for the last three months or so, the market appeared to be breaking out towards the end of February.  I’m even seeing trade press that says the NASDAQ is on a run!  As a result the Rescue My IRA value recorded a new high, making a jump of 2 percent during the month. 

Of course, that result reflects unrecorded gains – I continue to track the three income streams from the covered call strategy separately.  Those include:
  • Stock gains or losses – the difference in the buy and sell prices 
  • Dividends – yields on shares held in the account, recognized on the ex-date 
  • Covered call premiums – standard practice is to write a covered call on every 100-share lot in the account, this income is the net of sell to open and buy to close transactions

As reported below, these streams account for about $462 in returns, or about 0.28% in absolute yield for the month, which translates to an annual return of 3.31%.  My goal is to try and generate 1% absolute yield per month, or an annual return of 12%, so February’s results fall short on this calculation. 

I don’t calculate the unrecorded gains and losses, which is why the account value changes independently from these results.  I figure that with a good trading plan, these things take care of themselves over the course of the life of each position, so the best success indicator ultimately is simply the increase in account value.  Even so, monitoring the three component items is a good way to track progress and improve decision making.

Even though I’ve come a long way on these skills, I’ve got a long way to go!

Here is a summary of results for February 2015.  As always, these amounts are net of commissions and fees.

Account Status:
·         Total Account Value, 2/27/2015 Market Close:  $170,606.92 - up from the January 2015 close of $166,116.66)
·         Total Cash Reserve, 2/27/2015 Market Close:  $37,037.92, compared to January end $34,186.66.
·         Core Stock Positions (as of 2/27/2015):  CA (300 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), NUE (200 shares), PPL (300 shares), QCOM (100 shares), T (400 shares)

Performance Metrics:
·         Option Premiums Collected (net, month of February):  $805.17 (0.48%)
·         Capital Gains Collected (net, month of February):  -$590.45 (-0.35%)
·         Dividends Collected (recognized on the ex-date): $247.00 (0.15 %)
·         Estimated Interest on Cash Reserve: $0.30
·         Total, Absolute Return:  $462.02 (0.28% absolute return, annualized return

Next Month To-dos:

In March, there are five positions with contracts expiring:  CA, CRUS, DOW, GM and HAL.  At the time of this writing, all five are in the money.  If all are called away, there is the possibility of $715.02 in capital gains, or 0.43 % return. 

March’s dividend forecast is better than January or February – there are seven stocks going ex-dividend during the month. The total estimated yield is $514.25, or 0.31%.  Three of the ITM contracts, DOW, GM, and HAL are among these; if they are called away the dividend haul will be reduced by $240.00, adjusting the total to $430.25, or 0.25% yield. 

Continuing with the sensitivity analysis I have been using to adjust my expectations for the month, I expect $1,145.27 in cash returns from stock gains and dividends, for a yield of 0.68% - in order to meet my goal of 1% return for the month I’ll need to sell covered calls in the amount of about $750.  In the event all of those contracts are exercised, I’ll have plenty of proceeds from sales to develop profitable covered call trades with…so it should be an exciting month. 

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

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