The S&P 500 index made its way
into positive territory during March, and I see that the year-to-date gain was 1.35%
on March 31. That’s after hitting a low
of -10.27% in February – where will it go next?
Will there be a pause for consolidation before continuing its climb, or
will it head back downward during the balance of the US election year?
To be honest, I’m not so
worried. I chose the covered call
strategy used in Rescue my IRA to insulate me somewhat from market volatility,
and so far that has worked: at the end of February the account’s year-to-date
performance was -2.51% versus the index at -5.09%; on March 31 I calculated a
year-to-date return of 1.76% compared to the 1.35% achieved by the broader
market.
I guess I’m emphasizing benchmarks
this year because the account is approaching its fifth year of operation, and I
truly want to understand how the strategy is performing. The mechanics of the methodology are
documented in my trading plan – I focus on S&P 500 stocks that are rated 4-star
or better (although I have sometimes made speculative choices at the 3-star level), I
look for an annual dividend yield of between 3 and 5 percent, I keep between 12
and 15 positions open at any one time, and I vary the amount of cash reserve I
keep at any given time to match my assessment of market conditions.
As far as specific activities in the
Rescue My IRA account during March, there were 14 positions and a cash reserve of
25% at the start of the month. Two
positions were unwound this month, and I moved the target reserves to 20%,
allowing me to set up 3 new positions for a total of 15 by the end of the
month.
My strategy of getting the reserves
up to 30 percent until the election is still in place, and I should be able to
have another look at that during April, since there are three in-the-money
contracts coming up (FB, BAC, and T), and one of them has an ex-dividend date
coming up in the first week of the month.
Because I unwound CMI and QCOM
during March, taking gains on both trades, my covered call revenue was negative
this month. It was a great month for
dividends, but March, June, September, and December always are; and so it goes.
Here is a summary of benchmark results
for March 2016 –the amounts are net of commissions and fees.
Account Status:
·
Total Account Value, 3/31/2016:
$170,565.96, which is up from the February 2016 close of $169,800.00
·
Total Cash Reserve, 3/31/2016:
$38,275.96, or about 23.93%; that’s down from last month’s balance of $42,225.96.
·
Core Stock Positions (as of 3/31/2016): AAPL (100 shares), BAC (500 shares), CSCO (500
shares), DIS (100 shares), DOW (200 shares), FB (100 shares), GM (200 shares), HST
(300 shares), INTC (200 shares), IP (200 shares), NUE (200 shares), SBUX (200
shares), SPY (100 shares), T (200 shares), XRX (500 shares)
Performance Metrics:
·
Option Premiums Collected (net,
month of March): -$695.01 (-0.41%)
·
Capital Gains Collected (net, month
of March): $1,352.67 (0.81%)
·
Dividends Collected (recognized on
the ex-date): $471.75 (0.28%)
·
Interest on Cash Reserve (estimated): $0.20
·
Total, Absolute Return: $1,129.61
(0.67% absolute return, estimated annualized return 7.99%)
Next Month To-dos:
There are two positions with dividends during April: CSCO and T. At the time of this writing, T is in the money with an April covered call, and is likely to be called away early. If both dividends are collected, the account will receive $222.00, or 0.13 % return on the 2016 beginning balance, but the amount reduces by $92.00 to $130.00 if T is called away. The dividend on T is offset by a gain of $149.00 if the stock is called.
There are two positions with dividends during April: CSCO and T. At the time of this writing, T is in the money with an April covered call, and is likely to be called away early. If both dividends are collected, the account will receive $222.00, or 0.13 % return on the 2016 beginning balance, but the amount reduces by $92.00 to $130.00 if T is called away. The dividend on T is offset by a gain of $149.00 if the stock is called.
Three positions have April covered
call contracts that will yield capital gains if the shares are called away: T, discussed above, and BAC and FB. All three are in the money, and combined they
will yield $937.00 if the shares are called – about 0.56% return on the 2016
beginning balance.
Between dividends and capital gains,
the plan accounts for about 0.64% total gain on the 2016 starting balance so
far. Covered calls will need to make up
the remaining 0.36% if I’m going to achieve the 1% goal that I set for Rescue
My IRA – this will have to be made up with roll-outs or with new positions
after expirations this month.
Over all, it was good to see the
account climb above the 2016 start this month, and even better to see it begin
to reach for some of the high points Rescue My IRA achieved in 2015. Is there more ground to gain ahead? It’s an election year, and it’s atypical for
the market to keep climbing in that environment – but we’ll see.
That’s it for the March update. Until the April post, happy trading!
