Saturday, April 2, 2016

Rescue My IRA: March 2016 Results

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.   

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!