January 2012 Results

Here’s a recap of trading results for January 2012.  As with previous months, the monthly recap is loosely organized into the following sections:  account status, performance metrics, and a to-do list for the next month.  

When presented as an ROI percentage, the returns for this month (and for the remainder of 2012) are based on the statement valuation of the account at the end of December 2011, which was around $127K.  To keep an element of anonymity to the blog, I generally post balances in rounded numbers – and honestly, it is too much work to calculate any kind of average daily balance and other approaches to valuation, even thought those would be technically correct!  


One thing is consistent; it is my big-ass goal for this money is to generate 12% growth per year in the account that is about $15K per year in monetary terms.

Most of my colleagues in the covered call community are discussing the difficulties with finding good trades in this market, which is being called “toppy.”  We could see an upturn as the economy is apparently improving, but we could also see some stabilizing here, and even short-term declines as the market continues to prepare for the next stage of growth.  The good news is that the covered call strategy is as good as any other approach to investing, given these conditions.

And January turned out to be a good month for the Rescue My IRA account.  Here are the results:

Account Status:
Total Account Value, 1/31/2012 Statement:  $130.168.92
Total Cash Reserve, 11/30/2011 Statement:  $22,635.20
Core Stock Positions (as of 1/31/2012):  ACM (800 shares), COP (100 shares), CSX (200 shares), DRI (200 shares), GE (400 shares), GLW (400 shares), HAS (200 shares), HRS (200 shares), IP (200 shares), MSFT (400 shares),  SPLS (500 shares), TGT (100 shares), T (300 shares)

Performance Metrics:
Option Premiums Collected (net, month of January):  $426
Capital Gains Collected (net, month of December): $1,011
Dividends Collected (recognized on the ex-date): $278
Interest on Cash Reserve (estimated total): NM
Total, Absolute Return:  $1,715
Absolute Return, Percentage Basis:  1.34%
Annualized Return, Percentage Basis:  5.45%

Next Month To-dos:
Five of the current positions go ex-dividend during the month of February, and several of them are likely to be called early on the ex-date:

·          COP, IP, TGT on 2/13

·          MSFT on 2/14

·          CSX, GLW on 2/28

The following covered call contracts expire in February: 

·          CSX 22.5 (x2)

·          DRI 46 (x2)

·          GE 18 (x2)

·          HAS 35 (x2)

·          HRS 40 (x2)

·          IP 32 (x2)

·          MSFT 27 (x4)

A couple of these positions are in the money, and I even added a couple of them as very NTM positions, so I expect to have some capital gains to report next month.  As I did last month, as options expiration approaches I will take a look at Deltas and see what is likely to be called away.

I started developing a new watch list, using the “dividend kings” analysis that many of my colleagues prefer.  I whittled this stock universe down to about 200 stocks and I am completing the research here so I can use a simple Excel sort to preliminarily pick stocks.  I’m probably halfway through the research, but so far, seven stocks are candidates to replace expiring positions, even in this toppy market:  BBY, CPB, K, NOC, SON, UTX, and WAG.  You may refer to my trading plan to see the screening conditions if you are interested.

Consolidated Lessons Learned:
Adjustment to GE:  I took the step of moving up the GE June position to February.  There was a tradeoff, since the option I bought back was ITM and the new on was ITM, but overall, I will still see a gain that totals $750 on this trade, nearly 12%, and annualized to about 47%.  This kind of trade is an exception to my usual approach, but I figured that the position was dead money for three months if I let it ride (although I would probably pick up at least one more dividend payout).  The trade is profitable overall, but I did give up around $200 in call premiums. 

Adjustment to ACM:  I rolled up ACM from a 22.5 to a 25 contract on the same day as I did the GE trade.  That gave me contracts that will be worth an additional $1,000 in stock gains if I am successful with this trade.  As with GE, the tradeoff was to lose my option premiums in exchange for the stock gain, but with ACM, which doesn’t match my investment criteria in Rescue My IRA (no dividends and unrated by one of the two systems I use), I rationalized the trade.  At the moment, this stock is climbing towards the March contract strike, so we’ll see where we end up.