Saturday, September 3, 2016

Rescue My IRA: August 2016 Covered Call Trading Results

As I have been doing this year, I will start the post with a comparison of Rescue My IRA year-to-date results with the S&P 500 figure, sourced from the Money Magazine web site.  and will continue to do so.  As of August 31, the year-to-date performance of the S&P 500 was 6.34%, and the year-to-date performance of Rescue My IRA was 5.44%, so we are staying close to the benchmark.

The performance gap closed a bit this month, possibly for two reasons:  first, I have started using cash secured puts (CSPs) in the portfolio, and second, I lowered the cash reserve I have been keeping to approximately 10 percent, although at month end I had my BAC shares called away due to an August 31 ex-dividend date so I am sitting at about 17 percent to start the month of September.

All in all, there is not much to report in terms of activity during August, except it was a steady, busy month of trading.  At one point during the month Rescue My IRA had 17 covered call positions in play and two CSPs – that is three trades higher than what I might usually have.  The goal has been to maintain a portfolio of between 12 and 16 positions, but I’ll rationalize this exception by saying it does appear that the trading has set the account up for a good September, which I will describe after the benchmarks:   

Account Status:
·        Total Account Value, 8/31/2016:  $177,642.51, up from the July close of $176,729.72
·        Total Cash Reserve, 8/31/2016:  $30,089.51, or about 17%
·        Core Stock Positions (as of 8/31/2016):  AAPL (100 shares), CSCO (500 shares), DIS (100 shares), DOW (200 shares), FB (100 shares), GM (200 shares), HST (300 shares), MDLZ (200 shares), MET (200 shares), NUE (200 shares), OXY (100 shares), PPL (200 shares), SPY (100 shares), TGT (100 shares), TROW (100 shares), XRX (500 shares)
·        Cash Secured Put (CSP) positions (as of 8/31/2016):  None

Performance Metrics:
·        Option Premiums Collected (net, month of Aug):  -$1,084.83 (-0.65%)
·        Capital Gains Collected (net, month of Aug):  $1,786.40 (1.07 %)
·        Dividends Collected (recognized on the ex-date): $125.00 (0.07%)
·        Estimated Interest on Cash Reserve: $0.24
·        Total, Absolute Return:  $827.61 (0.49% absolute return, estimated annualized return 5.93%) 
·        S&P 500 Index 2016 year to date performance as of 8/31/2016: 6.34%
·        Rescue My IRA year to date performance as of 8/31/2016: 5.44%

Next Month To-dos:

As of this writing, there are six covered call contracts expiring in September:  CSCO, DOW, MDLZ, MET, OXY, and TROW.  If all of them are called away on expiration (they are a mix between the 2 Sep weeklies and the conventional contracts), the account will net stock gains of $602.11, or 0.36% absolute return on the account.  A number of these stocks go ex-dividend during September, so the likelihood of assignment and receiving these gains is high.

September is always a good month for dividends, and 10 of the current positions will go ex-dividend this month.  If I collect the dividends on all of them – DOW, GM, HST, MDLZ, NUE, OXY, PPL, SPY, TROW, and XRX – the haul is $692.75, or 0.41% absolute return.   However, there is significant overlap with the expiring contracts this month, and I am forecasting that the total of dividends will be more like $259.00, due to the likelihood of having many of the stocks called away.

The lower dividend factor will be fine with me if the stock gains are achieved – it’s a total of $851.11, or around 0.51% absolute return.  I’ll need to make up another $850.00 or so to cover my monthly goal of 1.00% absolute return – but, hey, bring it on!

So that’s my update for August.  Until next month, happy trading!