Diversion

Sunday, May 17, 2015

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%

Wednesday, May 13, 2015

Unwinding FCX

When I picked FCX for a trade last month, I knew I was choosing a stock with a lot of volatility, as well as one that gets a lot of talk in various forums.  These facts define shares that I would normally not deal with in Rescue My IRA, but I did have the capital at the time and the potential profit on the trade seemed to offset the risks of a short-term position, so I bought 500 shares and sold covered calls against them.  I was able to unwind the position for a good profit in early May, after a six week holding period. 

Here is the final analysis of the FCX trade, net of commissions and fees:

FCX

Shares:
Bought 500 shares in March 2015.  The total basis was $9,467.00 with an average share price of $18.93.
I unwound the position in early May at an average price of $23.84, for a total gain of $2,450.74

Options:
Total options income:   -$1,527.92 – as is often the case on unwind trades, I traded option premiums for stock gains.

Dividend:
Total dividends collected:  $25.00


Net Profit:
Total Net Profit after Unwinding:  $947.82
Absolute Return on Investment: ($947.82/$9,467.00) = 10.01%
Annualized Return (45 days):  10.01%*(365/40) = 81.21%

Two New Positions: CSCO and DOW

So far in May, I’ve opened two new Rescue My IRA positions, one each in CSCO and DOW.  I’ll catch up those posts today with an assessment of the position plans. 

I placed the DOW trade first, early last week.  The source of funds was the proceeds of the FCN trade, which I had unwound for a profit – I guess that is another post I should catch up on this week! 

The CSCO trade was one I decided to place after thinking a little bit about the market:  I think it has legs until October or so, once election activities get hot and heavy and we collectively start thinking about what the change will mean.  Until then, I wanted to get more of my cash reserves into stock, so with the CSCO trade I have the ratio down to around 12 percent.

Here are the position plans for CSCO and DOW, net of commissions and fees. 

CSCO

CSCO is one of a half dozen or so stocks I have traded multiple times in Rescue My IRA.  I bet there has been at least one per year and probably two per year a couple of times.  It’s such a well-recognized brand name that I have no reservations choosing it, as long as it meets my other selection criteria.

Transactions

Bought 300 shares in two transactions at average share price $29.14 (total basis $8,741.99)
Sold 3 $30 June 2015 covered calls

Net Profit:

1) Options Income:  = $141.25
2) Dividend Income (no dividend forecast during contract): $0.00
3) Capital Appreciation if assigned at $30.00:  $240.01

Total Net Profit if assigned in June:  $381.26
Absolute Return on Investment: ($381.26/$8,741.99) = 4.36%
Annualized Return if Assigned and Dividend Collected (40 days):  4.36%*(365/40) = 39.80%


DOW

I traded DOW earlier this year.  When I ran my screen to reinvest the proceeds from FCN, it was the only stock I did not currently hold in Rescue My IRA.  So there you go.

Transactions

Bought 200 shares at average share price $51.92 (total basis $10,383.00)
Sold 2 $52.50 June 2015 covered calls

Net Profit:

1) Options Income:  = $205.50
2) Dividend Income (no dividend forecast during contract): $0.00
3) Capital Appreciation if assigned at $52.50:  $99.00


Total Net Profit if assigned in June:  $304.50
Absolute Return on Investment: ($304.50/$10,383.00) = 2.93%
Annualized Return if Assigned and Dividend Collected (45 days):  2.93%*(365/45) = 23.79%

Tuesday, May 5, 2015

Rescue My IRA: April 2015 Results

Here’s the monthly report for Rescue My IRA: while we’ve had some decent market volatility this account is up by nearly 3% for the year.  My side venture of Hawksbill Hop Yards is still keeping me busy (you can read about the farm here:    

My strategy of reducing cash reserves to between 15-20% of the account value seems to be working out, although I have to admit I picked a few stocks I am not entirely happy with – I compromised my selection criteria on one or two of them so I will be riding these out.  However, there are 14 positions in the portfolio as of April 30, so the risk from those few is spread out over some higher quality positions.

In April, the bulk of the returns - $1,860 – was produced from stock gains as four positions were either called away or unwound:  FB, HAL, JPM, and SPY.  Covered call premiums were at about breakeven, mainly due to the position unwinds that generated the offsetting gains above, and it was a good month for collecting dividends – Rescue My IRA earned just over $400 through this category of income. 

Here is a summary of benchmark results for April 2015- as always, these amounts are net of commissions and fees.

Account Status:
·         Total Account Value, 4/30/2015 Market Close:  $172,428.51 – up from the March ending balance of $169,187.41.
·         Total Cash Reserve, 4/30/2015 Market Close:  $26,314.51 – still tracking in the 15-20% range.
·         Core Stock Positions (as of 4/30/2015):  ABBV (100 shares), AAPL (100 shares), CA (300 shares), COP (100 shares), EMC (400 shares), F (500 shares), FCX (500 shares), GE (400 shares), NUE (200 shares), PPL (300 shares), QCOM (100 shares), SPY (100 shares), T (400 shares), TXN (200 shares)

Performance Metrics:
·         Option Premiums Collected (net, month of April):  -$109.14 (-0.07%)
·         Capital Gains Collected (net, month of April):  $1,859.97 (1.11 %)
·         Dividends Collected (recognized on the ex-date): $407.00 (0.24 %)
·         Estimated Interest on Cash Reserve: $0.30
·         Total, Absolute Return:  $2,158.13 (1.29% absolute return, annualized return
15.45%) 

Next Month To-dos:

Rescue My IRA begins the month of May with four covered call positions set to expire in May:  AAPL, EMC, FCX, and TXN.  It looks like I am pretty far underwater on EMC and TXN, so I’ll take early action to roll these two out, although I may have to go pretty far into back months for this – possibly July, or worse, October.  We’ll see what we can work out on those, meanwhile, the gains on FCX and AAPL should hold us over.   

The dividend forecast is not as good as April but still not bad:  there are four positions going ex-dividend this month, yielding $315.00.  One of these, AAPL, is in the money with a May expiration, so it’s not likely I’ll be holding this one on the ex-date, reducing the dividend haul to $263.00.

Assuming I can roll out EMC and TXN, the account will have a good month during May, otherwise it will be a breakeven month.  The market seems to be holding forth with steady gains, so I’m content to watch and wait, although I will do a better job of staying true to my stock picking criteria. 


So that’s it for April results.  Until next month, happy trading!