Like many of my generational colleagues, the baby boomers, I've found that my best intentions about saving for retirement aren't always meeting the mark. In 2011, I took some old 401(k) accounts and combined them into a self-directed IRA with Scottrade, and established a strategy of using covered calls to stabilize and enhance my returns. Rescue My IRA chronicles the progress of my IRA rescue using this approach.
Yesterday, my BA
position went ex-dividend and was called away – the stock has had a good run in
the new year so far and has traded in-the-money since January. The call was not unexpected; in fact, since I
scored a hat trick with it – earning income from covered call premiums, a
dividend payment, and a stock gain – it is one of this year’s Rescue My IRA success
Next steps for me are
to put the proceeds back to work, so I’m getting busy with research now. In the meantime, here’s the final analysis of
the BA trade, net of commissions and fees:
Bought 100 shares in September
2014 at an average price of $129.37, total position basis $12,937.00.
Sold on unwind 100
shares at $13,500.00.
(for the term of this trade, strike prices ranges from $130 to $135)
Total Net Profit after Unwinding: $759.91
Absolute Return on Investment: ($759.91/$12.937.00) = 5.87%
Annualized Return (140 days): 5.87%*(365/140) = 15.31%
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:
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.
·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)
Collected (net, month of January): $1,050.91 (0.63%)
Collected (net, month of January): -$572.36 (-0.34%)
(recognized on the ex-date): $188.00 (0.88%)
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%.
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!