Saturday, October 1, 2016

Rescue My IRA: September 2016 Results

Continuing with the recent trend of starting these monthly Rescue My IRA blog posts with a comparison of some benchmarks to the performance of my account, the covered call approach is holding its own for 2016 year-to-date through September 30.  The account has achieved 6.39% for the year so far, while the S&P 500 index is at 6.08%, and the SPY ETF is at 6.10% - that’s the first time the account has been slightly above the other benchmarks.

Some Cascade hops cones from the 2016 harvest.
On a side note, my home brewing hobby has now turned into a business.  Last year, I started a farming venture to grow hops, which I used in my hobby brews but have also sold to a few Virginia breweries.  This year I pulled the trigger on starting a Nano brewery in the Shenandoah Valley with a five-barrel brew house; all of the financing is in place, the equipment is being fabricated, the mechanical, electrical, plumbing, and construction contracts are in place, and we have submitted for licenses – we hope to open in March! 

I’ve added the second benchmark here, SPY ETF, at the suggestion of one of my colleagues on the Yahoo Just Covered Calls board.  While the ETF is one of my frequent covered call trades, and I have often written Cash Secured Puts (CSPs) against it since early this year, the hypothesis is that it may be a better benchmark than the S&P 500 tracker, since dividends are incorporated, and they are a key part of the strategy for Rescue My IRA.

It was a busy month for the account, with trading activities balanced between option premiums and stock gains.  The highlight was dividends, with eight positions hitting their ex-dividend dates and yielding almost $560 – that amount comprises the cash yield on the account. 

During the month I unwound two positions with the goal of settling back into the routine of having from 12 to 16 trades in progress (the month ended with 15 trades in place).  The cash balance is averaging about 20 percent, but I am using that as a way to write CSPs with about 10 percent of the account value.  To date, most of these trades are on the SPY ETF, as noted above; I think this may be my way forward on   

To keep moving forward in business and in life, we have to keep learning.  That’s where I’m coming down on the CSP question – it is adding value to Rescue My IRA.  I’ll put together a blog post about the approach I’m using later this month.

Here is the benchmark data for the account during September:     

Account Status:
·        Total Account Value, 9/30/2016:  $178,312.12, up from the August close of $177,642.51
·        Total Cash Reserve, 9/30/2016:  $40,066.12, or about 22%
·        Core Stock Positions (as of 9/30/2016):  AAPL (100 shares), DIS (100 shares), DOW (200 shares), FB (100 shares), GM (200 shares), IP (200 shares), MDLZ (200 shares), MET (200 shares), NUE (200 shares), PPL (200 shares), QCOM (100 shares), SPY (100 shares), T (200 shares), TROW (100 shares), XRX (500 shares)
·        Cash Secured Put (CSP) positions (as of 9/30/2016):  None

Performance Metrics:
·        Option Premiums Collected (net, month of Sep):  -$1,306.00 (-0.78%)
·        Capital Gains Collected (net, month of Sep):  $1,286.08 (0.77%)
·        Dividends Collected (recognized on the ex-date): $556.75 (0.33%)
·        Estimated Interest on Cash Reserve: $0.24
·        Total, Absolute Return:  $537.07 (0.32 % absolute return, estimated annualized return 3.85%) 
·        S&P 500 Index 2016 year to date performance as of 9/30/2016: 6.08%
·        SPY ETF year to date performance as of 9/30/2016:  6.10% 
·        Rescue My IRA year to date performance as of 9/30/2016: 6.39%

Next Month To-dos:
During September, I had to carefully manage six covered call trades that were expiring during the month.  I unwound two of these, and rolled out several of them, mostly to October, so this month starts with seven positions forecast to expire. 

Two positions are long-term under water:  NUE and XRX, so I am looking to roll them out and up; I’ve picked out some January strikes as my strategic targets for these.  If I am successful with those two, and the remaining five positions play out, the account will be most of the way to achieving my goal of 1% cash return during October. 

Four of the remaining five positions are narrowly out of the money, and one is in the money.  I can predict a busy month of either rolling out some of these or setting up new trades if they end up getting called away at expiration.

After all the dividends in September, there is only one position with an ex-dividend date in October.  The stock is T, and since the November contract I have on it is out of the money, I am forecasting that Rescue My IRA will collect that $96.00.

That’s it for the September update – as always, the results are reported net of commissions and fees.  Until next month, happy trading!

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