A Wash Trade - VLO for COP

The value of Rescue My IRA has crossed the $170K threshold and appears to be holding on at that level, so I turned my thoughts to doing some pruning in the covered call positions for the last few weeks.  I looked for candidates with long holding periods and significantly out of the money covered calls where I could do a “wash sale” – taking a loss on one stock and buying a replacement in the same industry – which is an approach you might use in a conventional account to manage capital gains taxes. 

Rescue My IRA is not taxed, but the approach is still a sound one.  Since the covered call portfolio is set up to operate with between 12 and 16 positions going at any given time, it’s expected that there will be one or two losing positions a year – those are offset by one or two big winners – while most of the rest perform according to plan, steadily generating a better than market return.

I settled on reworking the COP position after doing a screen for other petroleum related shares that offered the potential for replacing it.  I quickly found VLO as an opportunity, and pulled the trigger on this trade.  While I ended up taking a four-digit loss on COP, I was able to set up a VLO trade that would recover a third of that in 30 days; and since the account has stabilized around a new high I was able to absorb the loss within the portfolio without affecting performance for the year.

Here’s a final analysis on the COP position, along with the position plan for the VLO shares – as always, these figures are net of commissions and fees.

COP

Shares:

Bought 100 shares in September 2014 at a basis of $8,050.99, or $80.51 per share. 

Sold the shares netting $6,531.87, for a loss on share value of around $1,500.00.

Options:

Total options income:   $364.95 – I started with the $80 strikes, but had rolled down to $72.50, and even with this approach it didn’t appear the stock would rise to a callable level anytime soon.

Dividend:

Total dividends collected:  $146.00

Net Profit:
Total Net Profit after Unwinding:  -$1,008.17
Absolute Return on Investment: (-$1,008.17/$8,050.99) = -12.52%
Annualized Return (240 days):  -12.52%*(365/240) = -19.04%

VLO

Shares:

Bought 100 shares in May 2015 at a basis of $5,765.00, or $57.65 per share. 

Options:

Total options income:   $102.75 – I sold a June $60 option on these shares.

Dividend:

Total dividends expected:  $0.00 – there’s no ex-dividend date during the holding period.

Net Profit:
Total Planned Net Profit at $60.00:  $217.00
Absolute Return on Investment: ($319.75/$5,765.00) = 5.55%
Annualized Return (30 days):  5.55%*(365/40) = 37.48%