The Hiatus and The Correction

I’ve been away from the blog since the beginning of August…over these last two months I’ve been watching the market as carefully as ever, and I have been working on Rescue My IRA.  I simply haven’t posted due to a couple of distractions, such as the hops harvest at my farm (link here), and the ribbon cutting on the building we just delivered at my day job.  I’ll try to catch up with a couple of posts this week and then make a goal of staying up-to-date after that.

The big news in the market, of course, is the correction that began in August.  Although there have been minor downward swings since I opened this account in 2011, this was the first to really test the covered call strategy I use here in Rescue My IRA.  More volatility is forecast, but now that the markets have recovered about half of the correction, it’s a good time to assess the situation.

I read the Washington Post every weekday morning.  While their business section isn’t much, there is a little table of Dow 30 performance.  At the depths of the correction during the last week of September, fully 24 of the 30 stocks showed a negative return from the year – I figured that meant everyone, even the big guys, were showing losses…all the more reason to keep the faith.

My resolution was not to sell my shares at a loss during the correction.  I determined that continuing to hold the companies I had chosen and staying true with the covered call strategy was the best path forward.  I bought and resold options throughout this period – “buy low, sell high” – using roll-downs and roll-outs as the way to keep the account updated.

I had hoped to increase my cash reserves to around 30% by October, but the correction got in the way.  Instead, cash is around 15% of the account – I’ll continue to work on getting this number to my 30% benchmark, since a presidential election year can be highly variable and I think I could use the correction.

Yesterday, when I checked the Dow 30, the number of stocks showing a negative return had improved to 18 or so, and it is likely that after the good day Friday, a couple more are back in positive territory. 

That’s the story with Rescue My IRA as well – at the end of September, we were showing a hit of around 10%.  After the strong week we had, the account is back to its starting value for 2015 – right at breakeven.  Once again I have covered calls written against every position, and it looks like I will make my cash flow goals for October.

I follow this post with a summary of some of the roll-outs and roll-downs I executed over the last two months.  Let’s get caught up!

Unwinding MAT for a Rare Net Loss

Generally speaking, when I select stocks for Rescue My IRA they meet the following criteria:  ranked as 4- or 5-stars by S&P, S&P 500 Index stocks, dividend yield ranging from 3 to 5 percent.  Sometimes I will also add a technical criterion by checking the 52-week trading range or the Bollinger Bands, but I am less consistent about that.  So, when MAT was recent downgraded to a 2-star stock, it fell well outside of my typical stock pick universe, so I took the unusual step of divesting the 200-share position.

I opened the position in April with a basis of around $40, and sold covered calls with $40 strikes, rolling them out monthly.  Earlier this week, I bought to close my October 2014 contracts and sold the stock at around $35 per share – but I had collected premiums and dividends, so the stock loss was mostly offset. 

This was only the fourth time or so in the three-year history of Rescue My IRA that I took such a loss; when I first started the account I might have moved more quickly on some shares when they were downgraded from 4-stars to 3-stars, but I have learned that patience generally pays off in those cases.  This time, my pick went from 4-stars to 2-stars, and the prospect of a long road ahead simply wasn’t appetizing.

Here is the final analysis of the MAT trade, net of commissions and fees:

MAT

Shares:

Bought 200 shares in April 2014 at an average price of $40.18, total position basis $8,036.00

Sold on unwind 200 shares at $7,133.44. 

Total stock loss:  -$902.56

Options:

Total options income: $401.95

Dividend:

Total dividends collected:  $76.00

Net Profit:
Total Net Loss after Unwinding:  -$424.61
Absolute Return on Investment: -$424.61/$8,036.00) = -5.28%
Annualized Return not calculated on the holding period of 110 days.

2012 Retrospective #1: Some Lessons Learned

As we begin a series of three or four retrospective posts about last year’s trading, I thought I might take a moment to make a note about some recognition for the blog.  As I posted back in August, there was a post on Commodity Traders HQ about the blog, ranking it in the "Top 100" of options trading blogs.  And more recently, the folks at Safe Options, a blog I follow over in the right hand column, recommended Rescue My IRA as a good resource for people interested in trading options.  Here are links to those two sources:

http://commodityhq.com/2012/top-100-options-trading-blogs/

http://www.safe-options-trading-income.com/OptionsTradingBlogs.html

For the balance of this particular retrospective post, I want to take a look back at the “lessons learned” entries that are sometimes included in the monthly recap posts.  In the earliest two or three, I had simply documented some trading practices – especially in cases where I was trading to make a position adjustment.  After the first few of these, I came to the conclusion that these trades should be conducted at a premium whenever possible.

There's also one about the importance of considering portfolio concentration, or the weighting of any particular position - but I have another post in mind for that story, which dealt with ACM shares.  There are two other trades that I will highlight in this post – the “dividend grab” I did for my NVS position and the poorly timed trade on COP, just before the PSX spin-off. 

These are taken from the original posts but edited for brevity here.

NVS Dividend Grab:  I moved hastily to capitalize on the 4% annual dividend for this stock.  In hindsight, it wasn’t a good idea to rush to pull the trigger.  I failed to include the ex-dividend price adjustment for the shares, which was substantial at 4%, and the error meant that the return calculation was wrong and actually below what I’ve set as the goal for Rescue My IRA trades. 

The position was called a month or two after the ex-dividend date.  I’d managed to sell two covered calls on the shares while I held them, and was back to breakeven on the position by the time I had them called away.

Then the dividend was paid – there was one more oversight in the trade.  NVS is a foreign stock, and there was a withholding for home country income taxes taken out of the dividend before it was credited to my account.  This reduced the annual dividend from about 4% to around 2.5% - the dollar value of the taxes was $87.

After all was said and done, I lost about $60 on the trade – about 1% of the investment. 

My lesson learned?  I adopted a new motto for Rescue My IRA after that:  Be not hasty.  It’s pretty much like anything else – if it sounds like there is an easy gain to be had, make sure that you’ve considered everything in the mix before you pull the trigger. It might still work out, but be prepared that it might not.

Watch and understand the news:  The second position worth noting as a “learning experience” was what happened to COP.  This is a stock I’ve held before in another account and had done well with - over the last ten years it paid a steady dividend and had reliable earnings that have meant share price gains. 

However, the company undertook some strategic “financial engineering” with some of assets in 2012, and I didn’t fully understand the impact that would have in the price of the shares.  I received shares from the spinoff of these assets – I recognized this as a dividend payment in my return calculations – and the price of the original COP holding was adjusted downward.  The option I had on the position was adjusted to be for original COP and the spinoff PSX, which would not pay dividends in the future.

So I closed out the option, and after doing a quick Monte Carlo analysis with the COP position, net of PSX, decided to close it out and put the proceeds to work with another stock.  The transaction resulted in a loss of about $187 on this position, which had a basis of $6,988 – overall, a 2.7% loss on the position.

The lesson learned is to watch the news diligently on Rescue My IRA positions, and consider carefully the impact these types of events can have on the shares.  I’ve never been a big fan of financial engineering by any firms, as I feel that this kind of activity masks management failures and defers recognizing them for the mistakes that they are...it’s something I will keep an eye out for in future positions.

I have a couple more posts to follow on the topic of 2012 Retrospective.  Next up is the story of three stocks - ACM, ADM, and HPQ - trades that I took some big hits on this year.

The GLW and CSX Positions - 2012 Performance

As I begin to assess how I’ve done as a covered call investor with the Rescue My IRA approach this year, I thought I might start with a pause and reflect on my two long-standing positions:  the 700-share GLW position, and the 500-share CSX positions.  They currently have May 2013 covered calls written on them, and I have held the shares pretty much since the beginning of the account.

As I reported last month, when I adjusted them with the May roll-out, I have earned a 12% annualized return on them – easily verifiable, since I’ve held them for more than a year.  Now, I’d rather that the positions on these shares were a bit closer in, but given the markets ups and downs, sometimes I take what I can get.

We’ll start first with a look at the basis for the shares.

GLW – 700 shares, purchased in several lots at a total cost of $9,241.88, or $13.20 per share

CSX – 500 shares, also purchased in a couple of lots, at a total cost of 10,861.01, or $21.72 per share

Over the course of holding these shares, I have written more than 10 contracts on each of them, as summarized in the table below:

Calculated on their respective bases, the premiums I’ve generated on these shares work out to 15.7% on GLW and 13.6% on CSX.  These holdings have met my goals of a 12% annualized return on the basis of the covered call premiums alone; however, they’ve also returned dividends along the way, since one of my screening criteria is a requirement for a dividend payment.

My goal on this criteria is to find shares that pay between 2 and 5% on an annual basis.  For GLW, assuming I hold the shares through the current May contract, I will have received a total of $276.00 in dividends, adding another 3% to the return, for a total of 18.7%.  On CSX, the dividend amounts are $338.00, or 3.1%, making a total of 16.7% on these shares.

The final component of returns in the Rescue My IRA account is capital gains on the shares.  On the GLW side of the ledger, here is where we have a little bit of a problem – at the current strike price of $13 per share I will take a capital loss on the position of about $160.  That will reduce my absolute return to 16.96% - it still averages out to 12.14% annualized for the position over the course of holding it approximately 510 days.

As for CSX, this stock has been a steady performer in this department – I’ve been writing covered calls at a $22.50 strike price since I first bought the shares, a price that will yield a capital gain of just about $371 on the position.  That works out to an absolute return of 20.15%, which annualizes to 14.42% over the 510-day holding period, slightly better than my goal of 12% annualized.

One of the advantages of using a portfolio model, as I do here with the Rescue My IRA account, is that you’ll have a few positions that exceed your goals, some that fall short, and some that perform right on target.  The GLW and CSX positions are examples of positions that have worked out as planned.

Next week, I’ll post my December monthly results and then write an annual results post.  I’ll follow those with a look at three trades where things didn’t go as planned, attempting to assess where my strategy went wrong.  I also have five positions where my goals were exceeded – even though the positions were short-lived – and I will put together a recap post on them as well.

Here’s to more positions that perform as reliably as GLW and CSX have for me in 2012!

Taking the Hit on HPQ

HPQ had a new CEO, and because it met my investment criteria at the time – August 2012, I took the plunge and bought 400 shares.  After some initial bad earning news, I added 100 shares with the hopes of leveraging my basis down, and I decided to adjust my covered call strategy on the position to focus on cash yields.  Finally, last month, there was even more bad news – so I decided to give up.'

Counted by themselves, the returns I earned from call premiums and dividends are almost 9 percent, which annualized meets my goals on returns.  However, I’ve had the position called away this week on the ex-dividend day, so I have taken a sizable stock loss on HPQ. 

That smarts, but I figure that is something that will happen from time to time – it is one of three instances this year where I’ve decided I could do better reinvesting the capital than waiting for a comeback, the others being ACM and ADM. 

I plan on a series of 2012 recap posts later this month, one of which will feature the ACM, ADM, and HPQ trades.  Until then, here’s the story of the HPQ position.

HPQ

Shares

8/20/2012 – Bought 400 shares for $7,919.00.

9/25/2012 – Bought 100 shares at $1,697.99.

Share basis of 500 shares is $19.23

Yields

Total Option Premiums:  $802.16

Total Dividends:  $52.80

Total Stock Loss:  -$3,634.10

Total Absolute Gain/Loss on the position:  -$2,779.14

So my actual loss on this position works out to a -28.90 percent return.  As I noted above, the returns from option premiums and dividends alone worked out to 9.00 percent or so, enough to meet my goals. 

It’s just an example of picking a bad stock.  Fortunately the portfolio model provides coverage for these periodic losses!

May 2012 Results - Hot Wash

(This month's recap is a "hot wash" - not all of the usual data is available so I'm rushing to print with what I have.)

Well, to begin with, I never thought direct management of the Rescue My IRA was going to be easy.  May was a tough month for the account when you measure it strictly on market valuations - "paper" gains and losses. Somewhere along the way I came across an old market bon mot: “Sell in May and go away;” at times, that seemed like it could have been good advice, as the market was in a steady decline for the entire month.

There was a complex bunch of account activities this month.  I decided to clear out the ACM shares, a legacy holding, and the transaction had its pros and cons – a capital loss as I sold below the share basis, but bringing the account fully into compliance with my trading plan on the positive side.  Also, my COP shares spun out a part of the business; that meant a portion of that holding wasn’t in compliance with the trading plan and I had to reconcile it – in the end, I have a small loss overall on that position. 

Meanwhile, May is a month where many holdings passed ex-dividend dates, and I rolled-out a number of the positions, sometimes into August or September, so my income from option premiums remained high and met my goals.  The fact that I now have some September contracts in the portfolio means that for some of my positions I really did sell in May and go away!

On a month-to-month basis the combination of the three return producing activities – share price gains, dividends, and option premiums – shows a net negative return for May.  It’s not as bad as it could have been, and I feel better about the account overall since it’s now wholly in line with the trading plan and diversification is improved. 

I have a feeling, however, that the summer months are going to test my commitment to this strategy.

 Here are the statistics for May 2012:

Account Status:
Total Account Value, 5/31/2012 Statement:  Not Available at the time of this post…but down for the month!
Total Cash Reserve, 6/1/2012 Statement:  $8,251.07
Core Stock Positions (as of 4/30/2012):   ADM (300 shares), CSX (400 shares), DOW (200 shares), GE (500 shares), GLW (700 shares), HAL (300 shares), ITW (200 shares), MSFT (300 shares), NOC (200 shares), SWK (100 shares), SPLS (500 shares), URS (400 shares), WAG (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of May):  $2,092.84
Capital Gains Collected (net, month of April): -$6,917.14

Dividends Collected (recognized on the ex-date): $1,891.46
Interest on Cash Reserve (estimated total): $0.06
Total, Absolute Return:  -$2,932.78
Absolute Return, Percentage Basis:  -2.30%
Annualized Return, Percentage Basis:  -27.96%

Next Month To-dos:
During June, seven positions have forecast ex-dividend dates.  I haven’t done much in terms of figuring which might be close to a share price that would result in an early call, but I don’t think many of them are at risk for that. The total take from dividends will be about $420, or 0.33%, an amount that translates to nearly four percent annually!  That's a second month of good dividend income.  Here’s the ex-date forecast:

·         HAL on 6/4

·         SWK on 6/4

·         URS on 6/13

·         SPLS on 6/21

·         GE on 6/23

·         DOW on 6/27

·         ITW on 6/27

As far as covered call contracts forecast to expire in June go, there are currently only two positions.  These are substantially off of their strike price and neither has a dividend ex-date before the options expire, so I’m likely to either do an adjustment by rolling-out or simply let the current contracts expire.  Here’s the list of June contracts:     

·         NOC 60 (x2)

·         ITW 57.50 (x2)

Consolidated Lessons Learned:

Concentration of capital:  I had held 800 shares of ACM in this account since the inception of Rescue My IRA.  That represented the highest concentration of value in the account, and I had always been concerned about the need to reduce the holding to something closer to the average position, especially since ACM is not a dividend stock and doesn’t meet my trading rules.

I had observed what happens to this company when it reports a bad quarter once before.  Last August the shares tumbled from $28 to around $21 on poor earnings news, but that was before I started the account and my calculated basis was around $25, so I continued to hold. I sold covered calls at a 25 strike on the position after I transferred it into Rescue My IRA.

Although the share price had gotten back to around $24, this month the company took another significant hit in share price after announcing a bad quarter, so I decided to face the music and divest.  The size of the position means I took a hefty loss on the position to do so, but was relieved to quickly have the capital back at work in a stock that met the requirements I’ve set for the account.

Still, you’re not supposed to buy high and sell low (thanks Dennis!) – so I’ll be working hard to make sure this doesn’t happen again!

Watch and understand the news:  The second position worth noting as a “learning experience” was what happened to COP.  I’ve had a good experience with this stock over the last ten years since it pays a steady dividend and reliable earnings that have meant share price gains. 

The company undertook some strategic “financial engineering” with some of its assets this year, and I didn’t fully understand the impact that would have in the price of the shares.  I received shares from the spinoff of these assets – I recognized this as a dividend payment – and the price of the original COP holding was adjusted downward.  The option I had on the position was adjusted to be for original COP and the spinoff PSX, which would not pay dividends in the future.

So I closed out the option, and after doing some Monte Carlo with the COP position, net of PSX, decided to close it and put it somewhere else.  The transaction resulted in a loss of about $187 on this position, which had a basis of $6,988.  That works out to a 2.7% loss on this position, which I’ve held since November 2011, but because it improves the quality of the portfolio overall, I can take it in stride.

The lesson learned is to watch the news diligently on Rescue My IRA positions, and consider carefully the impact these types of events can have on the shares.  I’ve never been a big fan of financial engineering by any firms, as I feel that this kind of activity masks management failures.  So it’s something I will keep an eye out for in future positions.

Closing out COP

Earlier in the month I realized that the 100 share position in COP no longer fit in with my trading plan.  The company has been working on a strategy to spin off a portion of its assets and their action finally came to be with the issuance of 50 shares in PSX.  This was done as a dividend of 50 shares for every 100 share lot in the parent stock.  The problem was that my option contract on COP was now adjusted to be for 100 shares in COP and 50 in PSX. 

PSX is not currently a dividend payer and is unrated by S&P - two strikes against holding it in the Rescue My IRA account.  My normal strategy would have been to immediately divest the shares, but the option contract on COP was now adjusted to be for 100 shares in COP and 50 in PSX.  A second impact was the adjustment of the COP shares to reflect the spin-off. 

I’d held this lot of COP since November, and would have been content to maintain them for a while longer if they still met the requirements of the trading plan.  Instead, I divested the whole package at a slight loss.

Here’s the analysis:

COP

Original November 2011 investment: 100 shares, $6988, average share price $69.88

Option Premiums (total – 8 contracts):  -$62.31

Dividends Collected (includes 50 shares of PSX):  $1,558.96

Stock Loss (sale price of $53.13 per share, adjusted by value of PSX dividend):  -$1,683.80

Total:  -$187.15

Absolute return -2.68%

Annualized return (210 days) -4.65%

Lesson Learned:  I had a good ride with COP, especially considering the early call I had on the previous COP position last October.  I probably could have gotten the position into a break-even status by waiting another month, but I feel like I took the correct action on this position to comply with my trading plan.  There is the problem with the net negative income off of the option premiums – this is the result of chasing the strike price up the ladder – although breakeven on the shares was at 70, I held contracts for 72.50, 75, and 77.50 during the course of this position.  I think I’ve summarized the impact of closing current contracts to chase a higher strike in a past post, and that is where the small loss came from – I’ve already fine-tuned my behavior in this regard to ensure I am always getting a net credit – a positive result – on contract trades.  

Biting the Bullet on Legacy Holding ACM

At last, I decided to end the roller coaster ride I was on with my legacy ACM position.  This is the stock of a company I used to work for, and my view as an employee had been that the company was slow to react to changing market conditions – certainly worse at it than competitors JEC and URS are, and I had also been an employee at JEC before (and done very well with the stock through the employee stock purchase plan, I might add!).

So when earnings came out last week and the stock took a haircut, back to test the lows that we had seen with the shares last year just after I was put on furlough, I decided it really was time to see if there was a better use of the money.  After all, this is a legacy position that was not established under the Rescue My IRA trading plan – it wouldn’t make the cut to begin with as a non-dividend stock, and since it is a company I am not in love with, well, it was time for ACM to hit the road, Jack.

My basis in the shares was around $25, and I don’t see getting back to that this year and maybe not next.  So I cut my losses this week and sold at $18.50.  That capital gain hit is going to set the account back a few months, but I immediately established a position in URS, which I will post about tomorrow, and the recovery has already begun.

Here’s the position analysis:

ACM

Shares:

November 2012:  Transferred 880 shares in from my 401(k) during the rollover.  I sold 80 shares immediately so I would have 8 round lots.  My basis was about $25.00 per share.

5/8/2012 Sold 800 shares at $14,784.66, average share price $18.49

Total stock LOSS:  -$5,233.34

Options:

Over the course of this holding, I have had covered calls with March, June and September expirations at strike prices between 22.50 and 25.00; total options income:  $204.91

Dividend:

ACM is not a dividend payer.  It is a legacy holding that was not selected based on the trading plan, and has always been a candidate for divestment because of this.

Net Profit:
1) Stock loss:  -$5,233.34

2) Options income:  $201.91

3) Dividend Income: $0

Total Net loss upon divestment:  -$5,233.34 + $201.91 + $0.00 = -$5,028.43
Estimated Absolute Return on Investment: -25.14%
Annualized Return:  Not calculated

All I can say here is good riddance.  I have my work cut out for me to recover this loss over the course of the rest of the year.

And we'll call it a lesson learned - the trading plan for this account is working; the investments I make here need to follow that trading plan!

April 2012 Results

Just as with March, I spent a lot of April on the road, although not quite as much.  And then we finished the project we were working on, so I could get back to paying attention to the Rescue My IRA account. 

This month, I did achieve the goal of one percent return, taking advantage of a sideways market to roll-out the seven April positions, which generated quite a few call premiums.  There was an early call on my T shares, on their ex-dividend date – that capital gain helped offset the negative cash flow from the NVS position that was (thankfully) assigned later in the month.

There was another unpleasant surprise in the NVS position:  when the annual dividend was credited to the account, there was a foreign tax liability that accrued, reducing the return by another $87.  So we’ll chalk that ill-considered trade up to experience, and be happy that I only lost one percent on the entire trade.  More below in lessons learned.

Here are the statistics for the month:

Account Status:
Total Account Value, 4/30/2012 Statement:  $135,563.91
Total Cash Reserve, 3/31/2012 Statement:  $6,407.26
Core Stock Positions (as of 4/30/2012):  ACM (800 shares), ADM (300 shares), COP (100 shares), CSX (400 shares), GE (500 shares), GLW (700 shares), HAL (300 shares), ITW (200 shares), MSFT (300 shares), NOC (200 shares), SWK (100 shares), SPLS (500 shares), WAG (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of April):  $1,722.26
Capital Gains Collected (net, month of April): -$94.96
Dividends Collected (recognized on the ex-date): -$86.87
Interest on Cash Reserve (estimated total): $0.18
Total, Absolute Return:  $$1,540.61
Absolute Return, Percentage Basis:  1.22%
Annualized Return, Percentage Basis:  14.70%

Next Month To-dos:
May will be an busy month for dividend-induced activities, since there are a total of eight positions that will see their ex-dates come and go.  A number of these have been trading at or near the break-even for an early call, so we’ll watch and see what happens: 

·         ADM on 5/14

·         MSFT on 5/15

·         COP on 5/16

·         WAG on 5/17

·         GE on 5/23

·         NOC on 5/23

·         CSX on 5/27

·         GLW on 5/29

If all of the dividends are collected, the amount will be $532, about 0.40% return, or half of the month’s goal.  As of 4/30, it looks like COP, CSX, GLW, and WAG face the possibility of early calls on their ex-dates.

There are three covered call contracts forecast to expire in May:     

·         CSX 22.5 (x4)

·         GLW 14 (x7)

·         NOC 62.5 (x2)

Consolidated Lessons Learned:

Be not hasty, continued:  I’ve posted about the NVS position a few times, but now that I am out of that position I can elaborate fully on it and the lessons I learned from a hasty trade that ended up being too good to be true.  NVS pays a handsome annual dividend that approaches 4%, in the weeks leading up to its ex-dividend date I decided to buy 100 shares in a dividend grab.  In keeping with the Rescue My IRA trading plan, I also sold a covered call on the position. 

When the ex-date came around, the shares dropped by the amount of the dividend – this always happens, but in this case, for some reason, I hadn’t figured the impact of this standard occurrence into my returns.  My response was to BTC the old covered call, and roll-out the position at the next lower strike.  That gave me some premiums to protect what would now be a strike at less than my purchase price.

I recalculated everything before making that trade, and found myself at pretty much break-even.  Becoming more and more disappointed with this trade, I also somewhat lost my patience, drumming my fingers every time I looked at its status and checked the calendar.  When could this be over with?  Not soon enough!

Finally, the date of the dividend payment came around.  The next day, I checked my account to see if the cash had come in, and it had…but there was also this foreign tax hit of around $87, which reduced the dividend percentage to around 2.5%. 

Worse yet, that subtracted from my returns calculation – putting me just below break-even.  I ended up losing about 1% on this one – somewhere around $60 off of my original purchase of the shares. 

As I mentioned, I will chalk this one up to experience.  I may make a move on an annual dividend payment like this one again sometime, but when I do, I will have a couple of additional checkpoints to evaluate before I pull the trigger!

December 2011 Recap

Here’s a recap of the action for December.  I will follow-up this week with a summary for 2011, adding together my returns for the three months the account was active:  October, November, and December.  As with last month, the recap is loosely organized into the following sections:  account status, performance metrics, and a to-do list for the next month. 

The returns for this month (and when I post for 2011) are based on the initial valuation of the account:  approximately $51K plus.  To keep an element of anonymity to the blog, I generally post in rounded numbers – and honestly, it is too much work to calculate any kind of average daily balance and other approaches to valuation that would be technically correct!  But one thing is consistent; it is my big-ass goal for this money is to generate 12% growth per year in the account.

One additional significant event to mention in the introduction: I rolled the IRA from my previous employer AECOM into this account.  That added about $75K to the balance (I will be more specific about this next month).  I’ve already established a few positions with these funds.  That income is included in the December returns…it will inflate my return percentage for the month a bit, but that will all average out over the longer term.  One thing that needs to be mentioned is that I had a position in AECOM shares (symbol ACM); I plan to write calls on this until I am able to get back to a break-even price above $25 per share.
Account Status:
Total Account Value, 11/30/2011 Statement:  $51,785.53
Total Cash Reserve, 11/30/2011 Statement:  $11,315.78
Core Stock Positions (as of 12/31/2011):  ACM (800 shares), CAT (100 shares), COP (100 shares), CSX (200 shares), DIS (300 shares), GE (400 shares), GLW (400 shares), IP (300 shares), MSFT (400 shares)
Performance Metrics:
Option Premiums Collected (net, month of December):  $806
Capital Gains Collected (net, month of December): ($626)
Dividends Collected (recognized on the ex-date): $248
Interest on Cash Reserve (estimated total): $.70
Total, Absolute Return:  $429
Absolute Return, Percentage Basis:  .84%
Annualized Return, Percentage Basis:  10.18%
Next Month To-dos:
None of the current positions will go ex-dividend next month

The following covered call contracts expire in January: 

CAT 92.50

COP 72.50

DIS 36 (x2)

DIS 37 (x1)

IP 27 (x2)

IP 29 (x1)

Several of these are in-the-money, so I should have some capital gains to report next month.

Consolidated Lessons Learned:
Formal trading plan:  Earlier during the month of December, I finished and published my first trading plan for the account.  I am finding that I am having to make some exceptions on the stock picking requirements, mainly in terms of the rigor I had applied for S&P 4 STARS and above shares.  At present, a few of the positions, including ACM, IP and CAT do not pass that hurdle.  I will revisit it in a few months as these situations evolve.

Taking a loss on a bad position:  This month I closed my AA position at a loss.  It was a pretty big loss, actually, and lowered my results below my goal of 1% total return on the account.  However, I believe that stock is going to be stuck in the doldrums for some time, and I am glad to have the opportunity to invest those funds elsewhere. While taking a loss this month reduced my return below the goal of 1%, on average, even with this loss, the account is exceeding 1% returns per month – more on this in the next post.