Sunday, October 18, 2015

New Position: DIS

In July I had begun to consider whether I should up the cash reserves in Rescue My IRA to around 30% of the account value.  An adjustment of this sort seemed justified since we are in the last year of the current administration; the market’s track record suggests that if you’ve had a good run as we have these last few years the seventh or eighth year of a presidency isn’t going to go as well.  I figured I had until October to act on this decision, but that’s not how I worked out – at the present I have about 15% in reserves.

One reason the strategy wasn’t fully implemented was my decision to add a position with 100 shares of DIS – which I started in August 2015 with a $110 October covered call.  Since until this year DIS was an annual dividend paying stock, I have often gone to the stock for an end-of-year play on a potential dividend run, targeting December contracts.  While I started with the October contract I have now rolled out the position to December.

Despite the correction that subsequently happened through August and September, the DIS position is holding its own.  Assuming the shares are assigned before the ex-dividend date (the stock now pays dividends twice a year, July 1 and January 1), the absolute yield will be about 5%, which equates to an annualized yield of 15%, based on a four-month holding period.    

Since I did not post on the new trade when it was initiated, here is a recap of the position plan, net of commissions and fees.  My next post will be an example of a trade that did not do as well. 



Bought 100 shares at average share price $108.72 (total $10,872.00)
Sold 1 $110 Oct 2015 covered call, subsequently rolled out to Dec 2015

Net Profit:

1) Options Income:  = $440.25
2) Dividend Income (Jan ex-dividend is after the contract period): $0.00
3) Capital Appreciation if assigned at $110.00:  $110.00

Total Net Profit if assigned on the contract expiration date:  $550.25
Absolute Return on Investment: ($550.25/$10,872.00) = 5.06%
Annualized Return if Assigned and Dividend Collected (120 days): 5.06%*(365/120) = 15.39%

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