As I mentioned in yesterday’s posts about new positions, it is a key goal of the Rescue My IRA approach to earn income in three ways from each position: trough call premiums, capital appreciation, and dividends. While I did my due diligence for the positions I would establish following my 401(k) rollover, I found opportunities with T and DRI where the ex-date was 1-6-2012, so I decided to quickly pull the trigger on these. Analysis follows.
T
1/3/2012 Bought 300 shares at average share price $30.41 (total $9,123.85)
1/3/2012 Sold 3 T Feb 2012 31 at $0.25 (total $64.24)
Net Profit:
1) Options Income: = $64.24
2) Dividend Income: Ex-date is 1/6, $132.00
3) Capital Appreciation if assigned at $31: $158.15
1/3/2012 Bought 300 shares at average share price $30.41 (total $9,123.85)
1/3/2012 Sold 3 T Feb 2012 31 at $0.25 (total $64.24)
Net Profit:
1) Options Income: = $64.24
2) Dividend Income: Ex-date is 1/6, $132.00
3) Capital Appreciation if assigned at $31: $158.15
Total Net Profit if Assigned and dividend collected: $64.24 + $132 + $158.15 = $354.39
Absolute Return on Investment: ($354.39/$9,123.85) = 3.88%
Annualized Return if Assigned (45 days): 3.88%*(365/45) = 31.51%
Yesterday's closing price was $29.96, so the Feb 27 is currently out of the money (OTM).
DRI
1/3/2012 Bought 200 shares at average share price $46.02 (total $9,203.00)
1/3/2012 Sold 2 DRI Jan 2012 46 at $0.62 (total $114.49)
Net Profit:
1) Options Income: = $114.49
2) Dividend Income: Ex-date is 1/6, $86.00
3) Capital Appreciation if assigned at $46: ($21.00)
1/3/2012 Bought 200 shares at average share price $46.02 (total $9,203.00)
1/3/2012 Sold 2 DRI Jan 2012 46 at $0.62 (total $114.49)
Net Profit:
1) Options Income: = $114.49
2) Dividend Income: Ex-date is 1/6, $86.00
3) Capital Appreciation if assigned at $46: ($21.00)
Total Net Profit if Assigned and dividend collected: $114.49 + $86 + ($21.00) = $179.49
Absolute Return on Investment: ($179.49/$9,203.00) = 1.95%
Annualized Return if Assigned (21 days): 1.95*(365/21) = 31.51%
Yesterday's closing price was $45.01, so the Jan 46 is currently out of the money (OTM).
When I made the decision to go with the DRI purchase, the shares were trading right at $46, so I was working on the margin. In the past when I have made similar trades, even though I recognize I small capital gain, I’ll accept that if the upside from the option premium and dividend meets my goals of more than $100 gain on the transaction and an annualized return of greater than 12%.
As with T, this stock goes ex-dividend today, the date of this post. There has been a risk this week of the DRI shares moving high enough over the strike price to be assigned early. However, as of yesterday’s close, it is much less likely that DRI will be assigned today.
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