New Position: DIS

In July I had begun to consider whether I should up the cash reserves in Rescue My IRA to around 30% of the account value.  An adjustment of this sort seemed justified since we are in the last year of the current administration; the market’s track record suggests that if you’ve had a good run as we have these last few years the seventh or eighth year of a presidency isn’t going to go as well.  I figured I had until October to act on this decision, but that’s not how I worked out – at the present I have about 15% in reserves.

One reason the strategy wasn’t fully implemented was my decision to add a position with 100 shares of DIS – which I started in August 2015 with a $110 October covered call.  Since until this year DIS was an annual dividend paying stock, I have often gone to the stock for an end-of-year play on a potential dividend run, targeting December contracts.  While I started with the October contract I have now rolled out the position to December.

Despite the correction that subsequently happened through August and September, the DIS position is holding its own.  Assuming the shares are assigned before the ex-dividend date (the stock now pays dividends twice a year, July 1 and January 1), the absolute yield will be about 5%, which equates to an annualized yield of 15%, based on a four-month holding period.    

Since I did not post on the new trade when it was initiated, here is a recap of the position plan, net of commissions and fees.  My next post will be an example of a trade that did not do as well. 

DIS

Transactions

Bought 100 shares at average share price $108.72 (total $10,872.00)
Sold 1 $110 Oct 2015 covered call, subsequently rolled out to Dec 2015

Net Profit:

1) Options Income:  = $440.25
2) Dividend Income (Jan ex-dividend is after the contract period): $0.00
3) Capital Appreciation if assigned at $110.00:  $110.00

Total Net Profit if assigned on the contract expiration date:  $550.25
Absolute Return on Investment: ($550.25/$10,872.00) = 5.06%
Annualized Return if Assigned and Dividend Collected (120 days): 5.06%*(365/120) = 15.39%

Three Roll-outs: AAPL, DOW, and VLO

Once I wrote the monthly results post, I had a look at my portfolio to plan some transactions for the month.  Even though the market continues on an upward trend, we do seem to have hit a point of resistance, so I thought I might take the opportunity to make adjustments or do other maintenance, like I did with the COP/VLO wash trade last month.  I settled on rolling out three positions:  AAPL, DOW, and VLO.

Here are the updated trading plans for these three positions, net of commissions and fees, and assuming forecast dividends are collected during the holding period:

AAPL

Shares:

Bought 100 shares in March 2015, total basis $12,757.99, average share price of $127.57.

Selling $130 covered calls and rolling monthly.

Options:

Total options income:   $871.74 – I started with the May call and rolled out to July with this trade.

Dividend:

Total dividends collected:  $47.00

Net Profit:
Estimated Net Profit:  $1,142.75
Absolute Return on Investment: ($1,142.75/$12,757.99) = 8.96%
Annualized Return (125 days):  8.96%*(365/125) = 26.15%

DOW

Shares:

Bought 200 shares in May 2015, total basis $10,382.00, average share price of $51.92.

Selling $52.50 covered calls and rolling monthly.

Options:

Total options income:   $252.50 – I started with the June call and rolled out to July with this trade.

Dividend:

Total dividends collected (June ex-date):  $84.00

Net Profit:
Estimated Net Profit:  $435.50
Absolute Return on Investment: ($435.50/$10,382.00) = 4.19%
Annualized Return (75 days):  4.19%*(365/75) = 20.41%

VLO

Shares:

Bought 100 shares in May 2015, total basis $5,765.00, average share price of $57.65.  This trade was designed as a wash sale for COP, a stock that had been mired in its 52-week lows - a post about the trade is here.  Selling $60.00 covered calls and rolling monthly.

Options:

Total options income:   $163.25 – I started with the June call and rolled out to July with this trade.

Dividend:

Total dividends collected (no ex-date during holding period):  $0.00

Net Profit:
Estimated Net Profit:  $380.25
Absolute Return on Investment: ($380.25/$5,765.00) = 6.60%
Annualized Return (60 days):  6.60%*(365/60) = 40.12%

Adding on and Rolling Out GM and T

During the rock-and-roll week we just had, I took advantage of the down days to do some add-ons and roll-outs on GM and T.  While the shares were low, I added 100 shares to each of these positions while also rolling them out a month or two.

Here are the current position plans for GM and T after the roll-outs, net of fees and commissions, and assuming I collect dividends through the holding period:

GM

With all the company has been through in the last few years, GM is currently rated five stars by S&P.  I established a 300-share position in November 2014, and added 100 shares this week to make a 300-share position out of it.  The basis is now $12,397.99, or $30.99 per share.  The current covered call is $32 Mar 2015; I started with a $32 strike and have been rolling the contract out every other month or so.   

Total covered call premiums:  $520.95

Total dividend payments (includes March ex-date):  $210.00

Total stock gain at $32:  $384.01

Total, absolute gain on the position:  $1,114.96

Total, absolute return percentage ($1,114.96/$12,397.99):  11.98%

Annualized total return percentage (approx 142 days if held to expiration):  30.97%

T

As with GM, this position was established with a 300-share lot back in August, and I added 100 shares last week.  Now it is a 400-share position with a basis of $13,621.96, or $34.05 per share.  I have been selling covered calls at the $35 strike, rolling them just about monthly since I started.

Total covered call premiums:  $308.44

Total dividend payments (includes January ex-date):  $336.00

Total stock gain at $35:  $360.04

Total, absolute gain on the position:  $1,004.48

Total, absolute return percentage ($1,004.48/$13,621.96):  7.37%

Annualized total return percentage (held approx 200 days):  13.46%

Two Roll-outs: EMC and GE

With the market headed south last week, there were several opportunities to roll out some of my positions.  My strategy was to look primarily at December expirations, and EMC appeared as a candidate; looking a little further out, my GE position – recently rolled up and out – also was ripe for a roll out, so these two transactions are the topic of this post. 

Here are the position plans for EMC and GE, net of fees and commissions, and assuming I collect dividends through the holding period:

EMC

This is a 400-share position established in September, with a basis of $11,745.99, or $29.36 per share.  The current covered call is $30 Jan 2015; I started with the October $30 and have been rolling the contract monthly.

Total covered call premiums:  $407.46

Total dividend payments (includes December ex-date):  $92.00

Total stock gain at $30:  $236.01

Total, absolute gain on the position:  $735.47

Total, absolute return percentage ($735.47/$11,745.99):  6.26%

Annualized total return percentage (approx 135 days if held to expiration):  16.93%

GE

I’ve held GE positions several times in Rescue My IRA since I started the account in October 2011.  This go-round is a 400-share position, started in April 2014, with a basis of $10,348.98, or $25.87 per share.  I have been selling covered calls ranging between $25 and $30 strike prices, but when compared to my goal of earning a 12% annualized return, this position hasn’t done so well – even though the total return is positive.

In light of this, I will continue to work on the position to see if I can improve it – but there is a strong likelihood I will accept the gains as they are on this $26 Feb 2015 position.   

Total covered call premiums:  $49.91

Total dividend payments (includes December ex-date):  $220.00

Total stock gain at $26:  $33.02

Total, absolute gain on the position:  $302.93

Total, absolute return percentage ($302.93/$10,348.98):  3.83%

Annualized total return percentage (held approx 300 days):  4.66%

Position Repair: CRUS

After I wrote my to-do list in the November monthly report, I quickly set out to do a position repair on the CRUS holding in the Rescue My IRA account.  As it was, I had adjusted the strike price down from $20 to $18.50, and if I had let the stock get called away I would record a loss on the shares totaling $600.  I decided to roll back up to $20, combined with a roll-out, as a way to mitigate this risk.

The position doesn’t meet all the rules of my trading plan, and as a matter of fact, I set it up as an exception.  For example, I typically look for shares that have a 4-star or better S&P rating, but CRUS was a 3-star stock when I bought it, and I also look for a dividend yield of between 3 and 5% per year, but CRUS doesn’t pay dividends.  Then I rolled down to $18.50 because I wanted to divest the shares after they were no longer rated by S&P. 

I’ve come around to not writing the position off after all – the volatility of this stock means there are plenty of covered call premiums available, enough to meet the yield expectations I have for shares in this account – 12% annualized.  So on Monday I rolled the shares out from December to March, and up from $18.50 to $20.00.

Here’s the current position plan for CRUS, net of fees and commissions.

CRUS

This is a 400-share position established in February 2014 with a basis of $8,038.00, or $20.10 per share.  The current covered call is $20 Mar 2015, I have been selling covered calls with strike prices ranging from $18.50 to $22.00.

Total covered call premiums:  $1,576.28

Total dividend payments (no dividend on CRUS):  $0.00

Total stock loss at $20:  -$56.00

Total, absolute gain on the position:  $1,520.28

Total, absolute return percentage ($1,520.28/$8,038.00):  18.91%

Annualized total return percentage (approx 375 days if held to expiration):  18.41%

Rolling up and out BA and DIS

This month I have adjusted a couple of positions in Rescue My IRA.  I guess that’s a bullish move, and I can live with that.  Today, I’ll post about rolling BA and DIS up and out.    

I established the DIS covered call trade earlier in November – setting sights on the annual dividend payment in December.  The stock has moved past my strike price with time left on the clock, the company has been on a growth curve, and no less than five friends have recently told me they are taking their families to Disney World in Orlando for a week or more this quarter.  So I’m on board with a roll up on this one.

On BA, similarly – this is a stock I’ve held a few times in the past.  It seems like there is a lot of macro effect in the economy that will lead this great American company to growth, so I am rolling it up. 

Rescue My IRA has a few years to go before I start to use it as a source of retirement income.  I feel like I have to make strategic decisions like these for time to time for the long term.  Three years in, I’m not worried about mistakes so much anymore, because I know how to manage them back.

But I do feel good about these trades.  Here are the details, net of commissions and fees, and assuming I hold the shares through upcoming ex-dividend dates.

BA

This is a 100-share position established in September 2014 with a basis of $129.37 per share.  I have been selling monthly $130 strikes and rolling them out, but this transaction raised the strike to $135 and rolled out to February. 

Total covered call premiums:  $141.21

Total dividend payments (assumes I collect February):  $146.00

Total stock gain at $135:  $545.00

Total, absolute gain on the position:  $832.21

Total, absolute return percentage ($832.21/$12,370.00):  6.43%

Annualized total return percentage (approx 150 days if held to expiration):  15.65%

DIS

This is a 100-share position established in late October 2014 with a basis of $87.59 per share.  As I mentioned above, I bought this one to set up a dividend play, since the stock pays an annual dividend in December.  Besides that, I grew up in Orlando and have pretty much always loved the company.  This trade is based on the assumption the stock will continue to climb after the December 2014 ex-date.

Total covered call premiums:  -$70.77 (I gave up this return based on the roll up)

Total dividend payments (forecast December ex-dividend):  $86.00

Total stock gain at $92.50:  $473.01

Total, absolute gain on the position:  $488.24

Total, absolute return percentage ($488.24/$8,758.99):  5.57%

Annualized total return percentage (held approx. 90 days):  22.61%

Sensitivity analysis suggests that if the stock is not called away at the $92.50 strike, I will roll out again – and might roll down to adjust.  The $90 strike is profitable, and the $87.50 is close, so between the dividend and the additional call premium, this position would remain in pretty good shape.  

Adjusting BA, COP, and CRUS

I was traveling last week on September 30 and didn’t have the chance to check my account values at the market close – so my monthly status report will have to wait until I get my statement in a few days.  In the meantime, the market kept trading, and we had a volatile day or two.  I used the down day on Thursday to make some adjustments to a few positions – BA, COP, and CRUS – which all had Oct covered calls written against them. 

In BA’s case, I rolled out from the 130 Oct to the 130 Nov, and netted $129.  For COP, I rolled out from Oct to Jan – the sector is getting beaten down a bit, so I had to go further out on this transaction – netting $75.  Finally, with CRUS, I rolled out from Oct to Nov and netted $200. 

One of my goals with Rescue My IRA is to use covered calls to make money in down markets as well as up markets…which is exactly what happened on this trading day!

Here are the position plans for BA, COP, and CRUS after the most recent trades, as always net of fees and commissions and assuming I collect dividends through the holding period:

BA

This is a 100-share position with a basis of $12,937.00, or $129.37 per share.  The current covered call is $130 Nov 2014, I opened the position in September with the $130 Oct. 

Total covered call premiums:  $287.23

Total dividend payments (assumes I collect November):  $73.00

Total stock gain at $130:  $45.00

Total, absolute gain on the position:  $405.23

Total, absolute return percentage ($405.23/$12,937.00):  3.13%

Annualized total return percentage (approx 60 days if held to expiration):  19.06%

COP

This is a 100-share position with a basis of $8,050.00, or $80.51 per share.  I started by selling $80 covered calls, in the money, with the intention of having a short holding period.  Thursday’s dip gave me a chance to roll out the October contract, so I did.

Total covered call premiums:  $225.23

Total dividend payments (forecast October and January 2015 ex-dividends):  $146.00

Total stock gain at $80:  -$68.99

Total, absolute gain on the position:  $302.24

Total, absolute return percentage ($302.24/$8,050.00):  3.75%

Annualized total return percentage (held approx 120 days):  11.42%

CRUS

This is a 400-share position, established in February 2014, with a basis of $8,038.00, or $20.10 per share.  I started by selling $20 covered calls, in the money, but have gradually rolled up to $22 covered calls.  I’ve also been able to roll this position out on a monthly basis and it has been a rewarding experience so far.

Total covered call premiums:  $1,000.333

Total dividend payments (no dividend on this stock):  $0.00

Total stock gain at $22:  $744.00

Total, absolute gain on the position:  $1,744.33

Total, absolute return percentage ($1,744.33/$8,038.00):  21.70%

Annualized total return percentage (held approx 270 days):  29.34%

I am very happy with the returns to date on CRUS, but should note that it is a position that does not meet my usual criteria for a Rescue My IRA trade – it is a 3-star stock with S&P and doesn’t pay dividends.  Still, things are working out, but it is definitely an exception to my rules.

AAPL: Rolling out and up

Last week I adjusted my AAPL position – there was some volatility when one of the competitors announced a new product, so I rolled the position out and up when the shares took a one-day hit.  That is the second roll-up I have done since acquiring these shares in June, I’ve written covered calls on the 100-share position at strikes of $95, $97.50, and now $100.00.

If the shares are called away early on their October ex-dividend date or at November expiration, I will have held them either 150 days or 180 days and generated an absolute return of more than 10% - I can live with that.

Here’s the position plan for AAPL, net of fees and commissions, and assuming I collect dividends through the holding period:

AAPL

This is a 100-share position with a basis of $9,380.99, or $93.81 per share.  The current covered call is $100 Nov 2014 but I started in May 2014 with a $95 strike.

Total covered call premiums:  $269.94

Total dividend payments (assumes I collect November):  $94.00

Total stock gain at $100:  $601.01

Total, absolute gain on the position:  $964.95

Total, absolute return percentage ($964.95/$9,380.99):  10.29%

Annualized total return percentage (approx 180 days if held to expiration):  20.86%

Sensitivity analysis shows that if the shares are called early on the October ex-dividend date, the absolute gain percentage drops to 9.79%, but the annualized gain goes up to 23.81%, due to the shorter holding period.

TGT: Rolling Up and Out

This may be the only time I ever posted three trades in a row where I was doing the same kind of adjustment on the positions.  On Thursday, I took advantage of the market hiccup to roll my TGT position out a month and up a strike price, just as I did earlier in the week for AAPL and IP. 

I moved the TGT contract from an August weekly at a strike price of $58.50 out to the regular September contract at a strike price of $60.  The trade was nearly a breakeven on premiums, setting me back about $7 in covered call premiums given up, but I’ve assured myself of a chance to receive the August dividend, and I have added the possibility of $1.50 per share in stock gains.  Plus, the estimated annual return is almost 24% for a two month trade – double my goal of 12% annualized.

Here’s the analysis of the TGT position as of this most recent trade, net of fees and commissions, and assuming I collect dividends through the holding period.

TGT

This is a 100-share position with a basis of $5,839.99, or $58.40 per share.  I set the position up to trade weeklies, but this trade rolled it out to a monthly basis.

Total covered call premiums:  $92.23

Total dividend payments (August ex-dividend):  $52.00

Total stock gain at $60:  $142.01

Total, absolute gain on the position:  $286.24

Total, absolute return percentage ($286.24/$5,839.99):  4.90%

Annualized total return percentage (held approx 75 days):  23.85%

IP: Rolling Out and Up

There was an unusual distribution on my IP shares – they spun off a part of the company and received some cash.  All of that led to an extra dividend in the form of three shares on my 200-share position, and a small amount of cash.  Making it that much more complex was the adjustment to the covered calls I’d written – I had to hold all of those items until expiration.

I resolved to streamline the position by rolling out and rolling up, and put the strategy into action as soon as regular options became available again.  I was able to buy to close the adjusted July $49 option, sell the three shares of the new company, and sell the August $50 option with a net cost of four bucks, improving my total returns to nearly 12% annualized in the process.

Pretty complication transaction all in all, but sometimes that is the way it is.   

Here’s the analysis of the total return on the IP position to date, net of fees and commissions, and assuming I collect dividends through the holding period.

IP

This is a 200-share position established in May 2013, with a basis of $9,592.00, or $47.96 per share.  I have sold strikes ranging from $47 to $50 and rolling them monthly during the holding period.

Total covered call premiums:  $583.38

Total dividend payments (includes the spun-off shares):  $428.08

Total stock gain at $50:  $390.00

Total, absolute gain on the position:  $1,401.46

Total, absolute return percentage ($1,401.46/$9,592.00):  14.61%

Annualized total return percentage (held approx 455 days):  11.72%