Rescue My IRA: May 2016 Results

Let’s start the May 2016 post with a check of our year-to-date results with where the S&P 500 stands – both as of Friday, May 27:  RMI 2.30%, S&P500 2.70%.  The hypothesis is that Rescue My IRA will earn slightly less than the S&P500, given the inefficiencies I face as a small investor; however, this performance should be offset by a smaller loss in down times.  I’ll continue to track these performance indicators to test the hypothesis, but also to benchmark the account’s performance.

I’m posting the May entry a few days early this week, since I am just getting back from a week of business travel (Phoenix!  “Dry Heat!”) and I’m looking forward to a week of vacation coming up.  Squeezing this write-up in here before what I expect to be a pretty full 4-day week of work before we head up to Maine.

For most of 2016 I have run the account at 15 or 16 positions, but at the close of May there are 14.  Cash reserves are slightly up from the April balance, this component of the account now sits at around 29%, versus 27% at the end of last month.

The big trade of the month was unwinding the FB position I had opened last July with a basis of $98.44 per share.  The first option I sold on these shares was a 95 Aug 2015, well in the money, but a trade that would earn a good short-term return despite the loss on the share price.  Eventually I rolled the shares out and up, settling on a final covered call with the 105 May 2016.

When I unwound the position in early May, the share price was over $117, so the net profit on the trade was nearly $2,000.  That’s an absolute return of 20% on the original investment of $9,844.  Since I do calculate an annualized return for comparison purposes, this one works out to almost 26% on the holding period of 285 days. 

That’s how you want all the trades to work out, but of course they don’t!  I’ll take this one, though, and I’ll look forward to making it work this well again sometime.

 

That’s the update for May. The benchmark results are below, and they are net of commissions and fees, as usual. 

Account Status:

·        Total Account Value, 5/27/2016:  $171,457.29, which is up from the April close of $169,909.66

·        Total Cash Reserve, 5/27/2016:  $49,447.29, or about 29.10%; that’s up slightly from last month.    

·        Core Stock Positions (as of 5/27/2016):  AAPL (100 shares), ABBV (100 shares), CSCO (500 shares), DIS (100 shares), DOW (200 shares), GM (200 shares), HST (300 shares), INTC (200 shares), IP (200 shares), NUE (200 shares), PFG (200 shares) SBUX (200 shares), SPY (100 shares), XRX (500 shares)

Performance Metrics:

·        Option Premiums Collected (net, month of May):  -$462.03 (-0.28 %)

·        Capital Gains Collected (net, month of May):  $1,895.74 (1.13%)

·        Dividends Collected (recognized on the ex-date): $212.00 (0.13%)

·        Estimated Interest on Cash Reserve: $0.20

·        Total, Absolute Return:  $1,645.91 (0.98% absolute return, estimated annualized return 11.78%) 

·        S&P 500 Index 2016 year to date performance as of 5/27/2016: +2.70%

·        Rescue My IRA year to date performance as of 5/27/2016: +2.30%

Next Month To-dos:
June is always a good month for dividends, and there are seven ex-dividend dates declared or expected for the month:  DOW, GM, HST, NUE, PFG, SPY and XRX.  Forecast dividends are $524, but the last three positions have in-the-money covered calls against them, two with June expiries and one with a July expiration, so the potential is for a reduction in dividends to around $300. 

The stocks – PFG, SPY, and XRX – have been taking a little bit of a beating during my holding period and I have rolled them down.  There is the potential of a loss of $1,521 if the shares are called away, so I’ll watch for a chance to make some corrections.  That’s not quite a 1% loss, but it seems like there will be some opportunities to roll the shares up without going too far out into the calendar, and that will be my goal for June, along with finding one more position to invest in, bringing the working total back up to 15.

So that’s my June update.  We’ll be traveling for the first week or so, so I’ll be away from the blog.  Until next month, happy trading!

Rescue My IRA: April 2016 Results

This year is the fifth year of Rescue My IRA, and as I continue to learn about the covered call strategy and refine my approach, I’ve added a statistic to the performance metrics I track – the S&P 500 Index year to date data.  It’s in the monthly “Performance Metrics” section of this write-up, and I’ll track the portfolio year to date performance there along with it.  For the record, the S&P was at +1.05% for the year on April 29, and the account was at +1.37%. 

The account is up for the year, but it is down slightly on a month to month basis from March.  The month ended with a 10-day string of bad earnings news; earlier in the month the results were showing a month to month basis gain.  But such is life in the market for the short-term – long-term we’re up, and hopefully that trend will continue!

As far as specific activities in the Rescue My IRA account, at the start of April there were 15 positions and a cash reserve of 24%.  One position (T) was called away on the ex-dividend date for a small profit, and I unwound a second (BAC) at the end of the month, also for a profit, so we closed the month with 14 positions and a 27% cash reserve. 

I set up the T position in March to be a short-term trade, lasting only 21 days.  Between covered calls premiums and the small stock gain the trade yielded 1.17% over those 21 days, which works out to 20.42% on an annualized basis – I calculate that strictly for comparisons and use it as a tie-breaker when considering multiple trades.

As far as the BAC trade goes, that one also was set up to be a short-term position back in February.  After one month roll-out and collecting the dividend, it began a climb.  I decided to unwind it at the end of April, collecting a 7.94% yield over 60 days, for an annualized gain of 48.30% - that may be the best of the year so far. 

There was another adventure this month – one of my colleagues on the Yahoo Just Covered Calls board suggested a pharmaceutical stock, so I set up an ABBV position.  His recommended stock offered what appeared to be a nice opportunity, but since it was not tracked by S&P it didn’t meet the criteria I use in Rescue My IRA, so I substituted with ABBV (for a sense of what my criteria allow in this industry, I have rotated between ABBV, MRK, and PFE during the last five-years). The position plan for this trade (I have it on the 60 May contract) offers a hat trick, which means it collects covered call premiums, a dividend, and a stock gain, with an absolute yield of 4.9% over 39 days, and an annualized yield of 45.81%. 

  

So that’s the news for April. The benchmark results are below, and they are net of commissions and fees, as usual. 

Account Status:

·        Total Account Value, 4/29/2016:  $169,909.66, which is down from the March close of $170,565.96

·        Total Cash Reserve, 4/29/2016:  $46,522.58, or about 27.38%; that’s up from last month’s balance of $38,275.96. 

·        Core Stock Positions (as of 4/29/2016):  AAPL (100 shares), ABBV (100 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), XRX (500 shares)

Performance Metrics:

·        Option Premiums Collected (net, month of April):  -$1,473.041 (-0.88%)

·        Capital Gains Collected (net, month of April):  $1,216.79 (0.73%)

·        Dividends Collected (recognized on the ex-date): $187.00 (0.11%)

·        Estimated Interest on Cash Reserve: $0.20

·        Total, Absolute Return:  -$69.05 (-0.04% absolute return, estimated annualized return -0.49%) 

·        S&P 500 Index 2016 year to date performance as of 4/29/2016: +1.05%

·        Rescue My IRA year to date performance as of 4/29/2016: +1.37%

Next Month To-dos:

The dividends forecast for May includes four positions yielding a total of $212.00:  AAPL, INTC, IP, and AP.  None of them have May covered calls written against them, so it is likely that all of these dividends will be collected.

The May covered call contracts are ABBV, CSCO, and FB.  I’ll look at CSCO for a roll-out and up this month, as the contract price is slightly below the purchase price, but if that doesn’t work out the net gain on these positions is $501.02.  That increases by $214.99 if I am successful rolling out the CSCO.

We’ll see how May goes, but that’s my April update.  Until next month, happy trading!