New Positions: HST and T

After unwinding the CMI and QCOM positions, I quickly rolled most of the proceeds into two new positions with HST and T.  Both are ex-dividend plays – their ex-dividend date is between when I set the trades up and the covered call expiration date, with the theory being that the stocks could be called away early. 

In the case of an early call, it will mean that I lose the dividend, but since I can get the money working again pretty quickly, the gain from the new position offsets the lost dividend.

Here are the position plans for HST and T, net of commissions and fees. 

HST

Transactions

Bought 300 shares at average share price $16.81 (total $5,044.00)
Sold 3 $17 APR covered calls. 

Net Profit:

1) Options Income:  = $113.00
2) Dividend Income (ex-date is 3/29): $60.00

3) Capital Appreciation if assigned at $17.00:  $38.00

Total Net Profit if assigned on the contract expiration date:  $211.00
Absolute Return on Investment: ($211.00/$5,044.00) = 4.18%
Annualized Return if Assigned and Dividend Collected (30 days): 4.18%*(365/30) = 50.90%

If called away on the ex-dividend date, the absolute return drops by $60.00, but it is still 2.99% for a 15-day holding period.

T

Transactions

Bought 200 shares at average share price $38.31 (total $7,661.00)
Sold 2 $38.50 APR 8 covered calls. 

Net Profit:

1) Options Income:  = $69.00
2) Dividend Income (ex-date is April 6): $96.00

3) Capital Appreciation if assigned at $38.50:  $21.00

Total Net Profit if assigned on the contract expiration date:  $186.00
Absolute Return on Investment: ($186.00/$7,661.00.00) = 2.43%
Annualized Return if Assigned and Dividend Collected (21 days): 2.43%*(365/21) = 42.20%

If called away on the ex-dividend date, the absolute return drops by $96.00, but it is still 1.17% for the 21-day holding period.

Unwinding CMI and QCOM

Looks like the last time I put up a post mid-month was back in October.  There is finally some good news in 2016, though, with the market officially making up the ground it had lost this year.  And for Rescue My IRA, that also means I had some contracts that were ready to be called away at a profit!

But I did not wait until expiration on these shares (CMI and QCOM) – instead I unwound the trades a few days early.  I reinvested the proceeds into HST and T last week, and will post about the new positions tomorrow. 

My philosophy regarding unwinding trades before expiration is somewhat nuanced – if I can accelerate a planned gain by a week or so, I will, as long as I can immediately find a next position for those proceeds to go towards.  The opportunity to do this at a minimum cost usually doesn’t happen until the final week before expiration, and I am typically able to exit with a cost of about $10 from the net gain.  That is worth it as long as the quick turnaround is executed, creating a trade with a 2% gross return.

Meanwhile, here is the final analysis of the CMI and QCOM trades, net of commissions and fees:

CMI

Shares:

Bought 100 shares in November 2015.  The total basis was $9,357.00, for an average share price of $93.57.

The covered call strike price ranged from $93.50 to $95.00 during the holding period, but I sold the shares for $10,244.77, netting $102.48 per share and a total gain of $1,065.77.

Options:

Total options income:   -$488.25; as I mentioned I rolled the strike price up during the course of the holding, but I traded the premiums for the stock gain when I unwound the position.

Dividend:

Total dividends collected:  $97.50.

Net Profit:
Total Net Profit after Unwinding:  $675.02
Absolute Return on Investment: $675.02/$9,357.00) = 7.21%
Annualized Return (105 days):  7.21%*(365/105) = 25.08%

QCOM

Shares:

Bought 100 shares in December 2015.  The total basis was $4,935.99, for an average share price of $49.36.

I sold the shares for $5,222.89, netting $52,23 per share and a total gain of $286.90.

Options:

Total options income:   -$20.25; this was an unusually stable position, so I never rolled out the March contract after setting it up in December.

Dividend:

Total dividends collected:  $48.00.

Net Profit:
Total Net Profit after Unwinding:  $314.65
Absolute Return on Investment: $314.65/$9,357.00) = 6.37%
Annualized Return (75 days):  6.37%*(365/75) = 31.02%

Rescue My IRA: February 2016 Results

So far during 2016, the market is down, with the S&P 500 index hitting a low of -10.27% on February 11, after a few days of trading between -8.00 and -10.00% that week.  There was also a week in January where the index hit similar levels. 

On February 29, the index had improved to 5.09% - that’s when I benchmarked the performance of Rescue My IRA for the month.  The account sat at -2.51% at that time, so we are still tracking better performance than the overall market.

I started with the benchmarks this month because my colleague Jeff pointed out an error in my last monthly post.  I was writing during the week where the S&P 500 was hitting those lows, and must have picked up a year-to-date metric rather than the final January number, which was -4.96% to compare with the Rescue My IRA result of -4.6% for January.   That’s slightly better than the market, but not as good as I wrote the first time! 

In any case, I appreciated the note - Jeff runs the “Just Covered Calls” board on Yahoo and I’ve learned a lot about the covered calls approach I use for Rescue My IRA from him and the other members there.

During February, the account continued along with 14 positions and a cash reserve that sits at around 25%.  I might have liked for that to have been higher heading into this correction, but time ran out, so we’re sitting tight.  As far as strategy goes for the way forward, I am going to strive to maintain this number of positions, but I will average the position value down during the year and continue to build my cash reserves to 30%.

Although trading activities consisted mainly of rolling out (and in some cases, rolling up!) covered call contracts, I did make one wash sale trade this month, unwinding my JPM position and moving the proceeds over to BAC.  I took a net loss of about $230 on the JPM for an absolute return of -3.47%, but the April contract on BAC should make up for it with an absolute gain of $398 and an absolute return of more than 6%.

Despite the loss on JPM, the account generated $1,116.17 in cash returns during February, counting dividends, covered call premiums, and the loss.  This equates to a return for the month of 0.67%, or a calculated annualized return of 7.99%.  It’s below my goal of 12% annualized, but given market conditions, I can live with it.

Here is a summary of benchmark results for February 2016 – as always, these amounts are net of commissions and fees. 

Account Status:

·        Total Account Value, 2/29/2016:  $163,406.96, which is up from the January 2016 close of $159,952.67

·        Total Cash Reserve, 2/29/2016:  $42,225.96, or about 26%; that’s up from last month’s balance of $40,750.30. 

·        Core Stock Positions (as of 2/29/2016):  AAPL (100 shares), BAC (500 shares), CMI (100 shares), CSCO (500 shares), DIS (100 shares), DOW (200 shares), FB (100 shares), GM (200 shares), IP (200 shares), NUE (200 shares), QCOM (100 shares), SBUX (200 shares), SPY (100 shares), XRX (500 shares)

Performance Metrics:

·        Option Premiums Collected (net, month of February):  $1,748.45 (1.04%)

·        Capital Gains Collected (net, month of February):  -$938.11 (-0.56%)

·        Dividends Collected (recognized on the ex-date): $305.50 (0.18%)

·        Interest on Cash Reserve: $0.33

·        Total, Absolute Return:  $1,116.17 (0.67% absolute return, estimated annualized return 7.99%) 

Next Month To-dos:

There are six positions with dividends during March:  BAC, DOW, GM, NUE, SPY, and XRX.  If all are collected, the account will receive $427.75, or 0.26 % return on the 2016 beginning balance.  So far this month, BAC is ex-dividend, and the remaining five are out of the money, so it’s not likely any will be called away on their ex-dividend dates  

Two positions have March covered call contracts that will yield capital gains if the shares are called away:  CMI and QCOM.  Both are in the money, and combined they will yield $171.01 if the shares are called – about 0.10% return on the 2016 beginning balance.

Between dividends and capital gains, the March plan accounts for about 0.36% total gain on the 2016 starting balance so far.  Covered calls will need to make up the remaining 0.64% if I’m going to achieve the 1% goal that I set for Rescue My IRA. 

I think that’s a stretch, but I’m glad to see the market coming back a little.  As I write this on Friday, March 4, the account’s balance is in striking distance of its starting point for 2016, so that’s a good thing. 

That’s it for the February update.  Until the March post, happy trading!