Monday, July 4, 2016

Rescue My IRA - June 2016 Results

A few more posts and it will be a habit, but the first item of business for the monthly post is to compare the year-to-date performance of Rescue My IRA (RMI) with the S&P 500, both as of June 30, 2016:  RMI 2.01%, S&P500 2.46%.  I’ve mentioned before that I expect the account to earn a little less on an annual basis than the S&P 500 return, in positive years, but I also expect to lose a little less than the index in negative years.

Everything was going fine this month until the Brits had their votes about leaving the European Union.  The markets tanked for a few days and then started a comeback, and that is where the month ended. 

On news like this I have taken to buying my covered calls back and then re-establishing them a few days later at the same price; if the expiration is soon, I’ll do a roll-out at the same time.  This activity helped with the covered call premium returns during June, which happened to be the first month in a few where we showed positive earnings in all three sources of income (covered call premiums, dividends, and stock gains).

The breakthrough this month was my first cash secured put (CSP) trade, since Scottrade has recently changed its policy and now allows them in IRAs.  On the Yahoo “Just Covered Calls” board, I’ve learned that this kind of trade is essentially the same as covered calls, with the exception that instead of holding the stock, you keep cash in the account in case the stock is put to you. 

For now, I’m using the same criteria for CSPs as I do for covered calls – component of the S&P 500 index, stock rated as 4- or 5-stars by S&P, and dividend yield ranging between 3-6%.  For CSP candidates, I added a criterion, so the stock needs to be within 25% of its 52-week low to be considered. 

For better or worse, I’m doing this in the energy sector.  The first trade, which I completed during June, was MOS, where I made a profit on a short-term trade.  I followed that up with a trade on VLO; that one is profitable as well, but the Brexit market impacts had me worried about assignment – although that didn’t end up happening.

The game plan for CSPs is to sell this or next month’s put and either have the option expire worthless or to have the stock sold/put to you at a lower price than it was on the day of your trade. If the outcome is expiration, the trade is complete, but if you are assigned the stock purchase you begin selling covered calls until the shares are called away.  I’m going to keep one or two of these contracts going in the near-term so I can practice the methodology.    
So that’s the update for June.  July is harvest month for the hop farm, so I may not be as active a trader this month as I have been.  In any case, my benchmark results for June are below, and they are net of commissions and fees, as usual. 

Account Status:
·        Total Account Value, 6/30/2016:  $170,976.96, which is down from the May close of $171,457.29
·        Total Cash Reserve, 6/30/2016:  $47,048.88, or about 28%, down slightly on the amount and percentage from last month.    
·        Core Stock Positions (as of 6/30/2016):  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), NUE (200 shares), PFG (200 shares) SBUX (200 shares), SPY (100 shares), XRX (500 shares)
·        Cash Secured Put positions (as of 6/30/2016):  VLO Sep 52.50

Performance Metrics:
·        Option Premiums Collected (net, month of June):  $263.96 (0.16 %)
·        Capital Gains Collected (net, month of June):  $991.80 (0.59%)
·        Dividends Collected (recognized on the ex-date): $524.75 (0.31%)
·        Estimated Interest on Cash Reserve: $0.20
·        Total, Absolute Return:  $1,780.81 (1.06% absolute return, estimated annualized return 12.72%) 
·        S&P 500 Index 2016 year to date performance as of 6/30/2016: +2.46%
·        Rescue My IRA year to date performance as of 6/30/2016: +2.01%

Next Month To-dos:

Because of the Brexit market action, all of my July contracts have been rolled out, so there are no transactions on the horizon.  I’m sure that just like every other month there will still be a spate of roll-outs, roll-ups, and maybe even an unwind – so not to worry, Scottrade, you’ll still earn some commissions! 

After June’s dividend haul, it’s not likely that July could ever keep up, but there are two positions with ex-dates this month:  ABBV and CSCO.  Together they will pay $187.00 or about 0.11% absolute return – so I’ve got my work cut out for me to make my goal of 1% return. 

So that’s my July update.  The summer doldrums are upon us and I don’t expect to see my action in the market during July.  But anyway, until next month, happy trading!