April Roll-outs: Seven (7!) Positions

With so many April positions coming up in a sideways trading market, it was clear that I would not see too many of my contracts assigned.  Plus, I traveled for most of the month, working on deadline, so I got way behind on posting here to the blog. 

But in essence, the strategy for the month was based on a decision to do a bunch of roll-outs, which is an approach a lot of my mentors in the covered call community would advise.

When all is said and done, I have rolled out seven positions this month, keeping the same strike prices and pushing out expiration a month or two.  Unfortunately, I couldn’t always find the returns I need in the next month, May, so I have gone further out on some of these.

Here’s a recap of the roll-outs, just summarizing based on the net trades:

New Position: SWK Jun 75

After my position in NVS was assigned on options expiration Friday, I searched for a new position to replace it with- this time looking at a tip from Jim Kramer.  I don’t watch the show very much, seriously – he’s very good but how much of that can you take?  Anyway, he called my attention to SWK, which had just reported earnings and had taken a hit in the market despite good results.

Looking into it, I found an opportunity that met my criteria and offers the potential for a hat trick – a gap up to the old price by a June contract expiry, and an ex-date in June before expiration, so I jumped in. 

Here are the details:

SWK

4/23/2012 Bought 100 shares at a total of $7,291.50, basis $72.92

4/23/2012 Sold 1 SWK Jun 2012 75 at a total of $161.74

Net Profit:

1) Options Income:  = $161.74
2) Dividend Income: $41 (Early June ex-date)
3) Capital Appreciation if assigned at $75:  $191.32

Total Net Profit if Assigned and dividend collected:  $161.74 + $41 + $191.32 = $394.06
Absolute Return on Investment: ($394.06/$7,291.50) = 5.40%
Annualized Return if Assigned (60 days):  5.40%*(365/60) = 32.88%
On the date today, SWK’s price was out of the money (OTM).

It's Finally over: NVS Called Away

As expected, my NVS shares were called away at expiration last week.  This is a position I have regretted since I got into it (check out previous posts by searching the blog on NVS) – I finally have gotten rid of it. 

The stock has a juicy annual dividend that first attracted me to it, and I bought a round lot before the ex-date.  I sold a covered call against it, but I forgot some of the basics of my trading plan in doing so.  When the stock dropped on the ex-date, which was close to the expiry date of my first position, I found it hard to establish a profitable next position and got in a rush, setting my next contract up for a loss.

Then the dividend payment came in, and it turns out this stock is subject to a foreign tax - so another nickel and dime taken away.  In the end, I only lost $9.73 on the position, and that turns into about 1% on an annual basis.  It’s a loss, but not so bad, and I really learned a lot from this one.  Here’s the history:

NVS – 100 Shares, basis $57.26, 55 Apr 2012 assigned

Option Premiums (total):  $84.23

Dividends Collected (net of foreign tax):  $159.13

Stock Loss:  -253.11

Total:  -$9.73

Absolute return -0.17%

Annualized return (60 days) -1.03%

I’m glad this is finally over with!

Hitting the Monthly Number - One Percent

Hi readers -

It may seem that way, but actually it's not been so quiet at Rescue My IRA.  I've just been traveling a lot lately and haven't been able to get regular posts up.

I have been continuing with my trading plan in the meantime, which means for the most part I have been doing some roll-outs on covered call contracts that were due to expire out of the money in April.

In fact, I've done that six times this month - and I have been able to generate nearly $1,300 in call premium profits.  The downside, I have a bunch of transactions to post and I will get them up as soon as I can.  The upside?  Combined with the stock gains on my called away T position earlier this month, which earned $158, the account has met my monthly goal of a one percent per month return, based on the December 31, 2011 account value.

I have two positions left with April expiries - CSX 22.50s and a NVS 55.  The CSX is out of the money, and the NVS is just barely in the money.  We'll see how those end up on Friday.

In the meantime, I'll try to get the recap post up on the other six trades - WAG, MSFT, COP, HAL, ITW, and ACM.

Best,
Rescue Jim

New Position: ADM

After my position in T was assigned earlier this month on its ex-date, I searched for a new position to replace it with.  After considering a couple of stocks, I selected ADM – there was a good post on it on Seeking Alpha recently, and it is one of a number of stocks that are on my watch list.  While I was en route to Dallas last week I pulled the trigger on this triple play opportunity. 

Here are the details of the new ADM position:

ADM

4/9/2012 Bought 300 shares at a total of $9,246.88

4/9/2012 Sold 3 ADM Jun 2012 32 at a total of $202.24

Net Profit:

1) Options Income:  = $202.24
2) Dividend Income: $52.50 (Mid-May ex-date)
3) Capital Appreciation if assigned at $32.00:  $335.94

Total Net Profit if Assigned and dividend collected:  $202.24 + $52.50 + $335.94 = $590.68
Absolute Return on Investment: ($5,90.68/$9,246.88) = 6.39%
Annualized Return if Assigned (60 days):  6.39%*(365/60) = 38.86%
On the date of purchase last week, ADM’s closing price was out of the money (OTM).

T Position Called Away Early

While I was traveling last week, my position of 300 shares of T was called away before the April 5 ex-date.  I’ve held these shares long enough that I have collected a quarterly dividend before, so I welcomed the capital gain I earned.

Now, I should make a note that the date April 5 has a significance, historically – it is the anniversary of the La Belle Discotheque bombing in Berlin.  I was stationed in Berlin at the time, from October 1981 until April 1986.  The bombing took place the night before I left. 

I can remember a conversation or two of friends who were planning to head over to that disco.  We’d been warned that something was afoot and to keep our eyes peeled for some kind of terrorist activity targeting Americans.  Looking back, I’d ascribe those warnings to diplomatic traffic going through the Libyan embassy in East Berlin – and I think I’ve read that somewhere before as well.

In the morning, there were suddenly new security procedures for just about everything, from getting back on base (I was stationed at Tempelhof Central Airport) after breakfast, to bag check at Tegel Airport later that day.  I wouldn’t find out about the bombing though until I was back stateside, receiving my discharge from my six year USAF enlistment.

The T position met my goal of 12% annualized return.  Here is the record on the position, as usual, net of fees and commissions:

T

Shares:

1/6/2012 Bought 300 shares at an average price of $30.41, total position basis $9,124

4/10/2012 Sold on assignment 300 shares at $9,282.79, average share price $30.94

Total stock gain:  $158.94

Options:

STO 31 Feb 2012 total $64.24

BTC 31 Feb 2012 total ($34.75)

STO 31 Apr 2012 total $49.24

Total options income:  $78.73

Dividend:

A dividend of $.66 per share was collected in January, and another was due on 4/5/2012, but the position was assigned before the second dividend was collected.

Net Profit:
1) Stock gains:  $158.94

2) Options income:  $78.73

3) Dividend Income: $132.00

Total Net Profit after Assignment:  $158.94 + $78.73 + $132.00 = $369.67
Absolute Return on Investment: ($369.67/$9,124) = 4.05%
Annualized Return (105 days):  4.05%*(365/105) = 14.08%

March 2012 Monthly Recap

For me, March 2012 was about being on the road.  I traveled every week of the month, to Indianapolis, Dallas, Baltimore, and Upstate New York.  What I found was that, combined with the market that remains relatively high and stable, it was more challenging than usual to make the numbers I have set as my goal.  While I was close, I didn’t quite get to the 1% per month benchmark.

So, while March wasn’t the best month so far, at least I didn’t lose money.  So here is the monthly recap, with the following sections:  account status, performance metrics, and a to-do list for the next month. 

Account Status:
Total Account Value, 3/31/2012 Statement:  $134,242.44
Total Cash Reserve, 3/31/2012 Statement:  $9,444.47
Core Stock Positions (as of 3/31/2012):  ACM (800 shares), COP (100 shares), CSX (400 shares), GE (500 shares), GLW (700 shares), HAL (200 shares), ITW (200 shares), MSFT (300 shares), NOC (200 shares), NVS (100 shares), SPLS (500 shares), T (300 shares), WAG (200 shares)

Performance Metrics:
Option Premiums Collected (net, month of February):  $749
Capital Gains Collected (net, month of December): $238
Dividends Collected (recognized on the ex-date): $122
Interest on Cash Reserve (estimated total): $0
Total, Absolute Return:  $1,109
Absolute Return, Percentage Basis:  0.87%
Annualized Return, Percentage Basis:  10.58%

Next Month To-dos:
There is only one stock that has an ex-date coming up:

•        T on 4/5 (there is an April call, likely to be assigned, on this position)

There are seven covered call contracts forecast to expire in April – I’ll note in-the-money (ITM) or out-of-the-money (OTM) below:   

•          T 31 (x3) – ITM
•         CSX 22.5 (x4) – OTM
•          COP 77.5 (x1) – OTM
•          HAL 35 (x2) – OTM
•          MSFT 33 (x3) – OTM
•          NVS 55 (x1) – ITM
•          WAG 35 (x3) – OTM

As in the past, as options expiration approaches I will take a look at deltas and see what is likely to be called away. 

Consolidated Lessons Learned:
Patience is a virtue:  This month, I decided not to churn or make hasty decisions.  This produced a steady return that wasn’t stellar and didn’t meet goals.  But it was a profitable month, nonetheless, because of the adherence to process in the Rescue My IRA account.