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.  

New Positions: GM and WIN

This is the second of a couple of “catch up” posts – earlier, I wrote about four “unwind” transactions, when I closed out covered calls on stocks I held, and now I’m writing about two stocks I added to the Rescue My IRA covered call portfolio this month.  The next post, in a couple of days, will report my results in the account for the month of November.

Here are the position plans for the two stocks, with anticipated results reported net of commissions and fees:

GM

Transactions

Bought 300 shares in early November at average share price $31.02 (total $9,307.00)
Sold 3 $32 Dec 2014 covered calls

Net Profit:

1) Options Income:  = $163.24
2) Dividend Income (December ex-dividend): $90.00
3) Capital Appreciation if assigned at $32.00:  $275.00

Total Net Profit if assigned on the ex-dividend date:  $528.24
Absolute Return on Investment: ($528.24/$9,307.00) = 5.68%
Annualized Return if Assigned and Dividend Collected (52 days):  5.68%*(365/52) = 39.84%

WIN

There is a lot going on with this stock – it is one I held before in the Rescue My IRA account, mainly because of the annual yield of more than 10%.  Now there is the planned spinoff of assets into a REIT – with shares returned as a dividend to WIN holders, and a December ex-dividend date that takes place before the spinoff.  All of this will make for an interesting holding, with a likely early call on some or all of my shares, but generally small investors can do well with these, and in any case, there will be a return from the covered call premium, allowing a slight hedge against the stock risks.

Transactions

Bought 800 shares at shares on November 24, average share price $9.85 (total $7.879.00)
Sold 8 $10 Feb 2015 covered calls

Net Profit:

1) Options Income:  = $183.00
2) Dividend Income (December ex-dividend): $200.00
3) Capital Appreciation if assigned at $10.00:  $103.00.

Total Net Profit if assigned and dividend collected:  $486.00
Absolute Return on Investment: ($486.00/$7,879.00) = 6.17%
Annualized Return if Assigned and Dividend Collected (90 days):  6.17%*(365/90) = 25.02%

Four Unwinds! AIG, HPQ, IP, and TGT

So I am way behind on posting transactions here – I wanted to do better in November but it didn’t work out.  I’ll partly make it up with a couple of posts here – first a summary of the four “unwind” transactions I completed this month, and second, a note about the two new positions I started this month.  Then, of course, there will be the wrap up post for the end of the month, probably early next week.

The four positions I unwound this month included (in alphabetical order) AIG, HPQ, IP, and TGT.  As a matter of fact, two of them – AIG and HPQ – were trades of less than an month in duration, and it’s quite possible that the HPQ trade was the best annualized return I’ve made since I started the Rescue My IRA account.  More on that later, after a quick recount of how and when I might typically unwind a position.

Generally speaking, anytime the delta on one of my covered calls reaches 1.00, I will consider a trade if I can buy to close the option and sell for a capital gain.  While these transactions typically mean I’ll lose a little cash in total returns (usually averaging $10-$30 per lot of 100 shares), there is an offset from a reduced commission fee (Scottrade charges $18 for settling option trades versus $7 for a user initiated trade), and usually I can get the funds back to work right away, generating new returns from covered call premiums to offset that.  Plus, I generally have enough action going on in the account not to worry about these small amounts.

Here is the final analysis of the four trades, net of commissions and fees, listed in alphabetical order:

AIG

Shares:

Bought 200 shares in early November at an average price of $53.83, total position basis $10,765.00.

Sold on unwind 200 shares at $10,962.75. 

Total stock gain:  $197.75

Options:

Total options income:   -$109.01 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $0.00 (I completed this trade before the December ex-dividend date)

Net Profit:
Total Net Profit after Unwinding:  $88.74
Absolute Return on Investment: ($88.74/$10,765.00) = 0.82%
Annualized Return (15 days):  0.82%*(365/15) = 20.06%

HPQ

Shares:

Bought 200 shares in mid-November at an average price of $37.25, total position basis $7,449.00.

Sold on unwind 200 shares at $7,824.00. 

Total stock gain:  $375.82

Options:

Total options income:   -$265.02 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $0.00

Net Profit:
Total Net Profit after Unwinding:  $110.80
Absolute Return on Investment: ($110.80/$7,824.00) = 1.49%
Annualized Return (5 days):  1.49%*(365/5) = 108.58%

IP

Shares:

Bought 200 shares in May 2013 at an average price of $47.96, total position basis $9,592.00.

Sold on unwind 200 shares at $10,450.76. 

Total stock gain:  $858.76

Options:

Total options income:  $123.77 (By unwinding, I exchanged most of the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $400.00

Net Profit:
Total Net Profit after Unwinding:  $1,382.53
Absolute Return on Investment: ($1,382.53/$9,592.00) = 14.41%
Annualized Return (570 days!!!):  14.41%*(365/570) = 9.23%

TGT

Shares:

Bought 100 shares in June 2014 at an average price of $58.40, total position basis $5,839.99.

Sold on unwind 100 shares at $6,411.26. 

Total stock gain:  $571.21

Options:

Total options income:  -$482.53 (By unwinding, I exchanged the option premium for additional stock gains in this trade)

Dividend:

Total dividends collected:  $52.00

Net Profit:
Total Net Profit after Unwinding:  $140.74
Absolute Return on Investment: ($140.74/$5,839.99) = 2.41%
Annualized Return (90days):  2.41%*(365/90) = 9.77 %

Rescue My IRA: October 2014 Results

When I was writing the September update, there were signs we’d have a choppy month during October.  That’s certainly what happened – mid-month the market was down by between five and ten percent, but it has since recovered.  Despite the forecasts, I stuck with the covered call strategy, and here at month’s end, I find that the value of my account has held up.

It’s been a good trading month between taking gains on AAPL in my recent “unwind” trade, rolling out the October covered call contracts that were out of the money, and opening some new positions now that October is behind us.  I hope that November is as good – I have quite a few contracts that expire this month, so as usual, I’ll be busy.

Meanwhile, here is the monthly summary of Rescue My IRA statistics for October, based on the market close on the 31^st. 

Account Status:

·        Total Account Value, 10/31/2014 Market Close:  $ 166,725.42, that’s up slightly from the October close)

·        Total Cash Reserve, 10/31/2014 Market Close:  $44,964.42

·        Core Stock Positions (as of 10/31/2014):  BA (100 shares), CNP (400 shares), COP (100 shares), CRUS (400 shares), DIS (100 shares), EMC (400 shares), FB (100 shares), GE (300 shares), IP (200 shares), KRFT (100 shares), PFE (300 shares), QCOM (100 shares), T ( 300 shares), TGT (100 shares)

Performance Metrics:

·         Option Premiums Collected (net, month of September):  $1,024.11 (0.66 %)

·         Capital Gains Collected (net, month of September):  $1,320.77 (0.85%)

·         Dividends Collected (recognized on the ex-date): $ 263.50 (0.17%)

·         Interest on Cash Reserve: $0.30

·         Total, Absolute Return:  $2,608.68 (1.69% absolute return, annualized return

20.26%) 

Next Month To-dos:

In November, there are five positions with covered calls that will expire:  FB, IP, PFE, QCOM, and TGT.  Only two of them are in the money as I write this – IP and TGT, but if all of them are called away they will generate about $600 in gains for a 0.39% return on the account value.  That result will be halved if only IP and TGT are called away.

The dividends forecast for November is much better than it was for October:  BA, CNP, PFE, IP, TGT, and QCOM all have upcoming ex-dividend dates.  The total payout could be as high as $420, for a 0.27% return.  If IP and TGT are called away on their ex-dates, that return will be reduced by a third, and if PFE and QCOM end up in the money by their ex-dates, the dividend income will be reduced even further.  We’ll see how things turn out.

Based on these calculations, I’m looking at a month where I can account for about half of my goal of generating one percent per month is accounted for, although if I take the in the money status of IP and TGT into account we’re only a third of the way there.  So there’s plenty of work to be done trading covered calls!

All in all, this is a pretty satisfactory result for the rough seas of October.  Rescue My IRA will stay the course with the covered call strategy.   

Until next month, happy trading!

Three New Positions: DIS, QCOM, and PFE

While I am gathering data for the Rescue My IRA October results post, I thought I would put up a post about the three positions I added during October.  While I didn’t get the timing exactly right during the choppy market – I was waiting to see if the correction this month would go to 10 percent and it didn’t – I do realize you have to have your funds invested in order to make money.  Sure there’s risk, but you cannot win if you do not play.

That’s part of why I have taken the covered call approach in the first place – it’s an attempt to make money in the market whether stocks are up or down.  The big guys all do it, and I figure that if a small investor like me doesn’t make a go of it as well, they are just profiting off of me and the rest of us.  A kind of exploitation of the middle class I suppose (no apologies for the politics!).

I added DIS earlier in the month and then on October 31, the last trading day, I added QCOM and PFE.  There not earth shakers by any means, but they are good examples of my preferred steady, small bites approach.

Here are the position plans for the three stocks, with results reported net of commissions and fees:

DIS

This is a dividend play.  DIS pays an annual dividend in mid-December, I sold a just in-the-money call to collect the premium, understanding that the stock will likely be called away on the ex-dividend date.

Transactions

Bought 100 shares at average share price $87.59 (total $8,758.99)
Sold 1 $87.50 Dec 2014 covered call

Net Profit:

1) Options Income:  = $267.74
2) Dividend Income (December ex-dividend): $0.0
3) Capital Appreciation if assigned at $87.50:  -$26.99

Total Net Profit if assigned on the ex-dividend date:  $240.75
Absolute Return on Investment: ($240.75/$8,758.99) = 2.75%
Annualized Return if Assigned and Dividend Collected (60 days):  2.75%*(365/60) = 16.72%

QCOM

I also planned for this position to bridge the ex-dividend date, which occurs in late November.  The calculations below include the dividend, since the stock was out-of-the-money at the time I set the position up.  If all goes according to this plan, I’ll have a hat trick.

Transactions

Bought 100 shares at share price $78.23 (total $7,822.99)
Sold 1 $80 Dec 2014 covered call

Net Profit:

1) Options Income:  = $75.74
2) Dividend Income (November ex-dividend): $42.00
3) Capital Appreciation if assigned at $80.00:  $159.01.

Total Net Profit if assigned and dividend collected:  $276.75
Absolute Return on Investment: ($276.75/$7,822.99) = 3.54%
Annualized Return if Assigned and Dividend Collected (52 days):  3.54%*(365/52) = 24.83%

PFE

The strategy for this stock also spans the ex-dividend date, which occurs in early November.  The calculations below include the dividend, since the stock was just barely out-of-the-money at the time I set the position up.  With only a few days to go before the ex-dividend date, my hope is to see a dividend run so that the stock will be called away early.

Transactions

Bought 300 shares at share price $29.93 (total $8,980.00)
Sold 3 $30 Nov 2014 covered calls

Net Profit:

1) Options Income:  = $52.24
2) Dividend Income (November ex-dividend): $52.00
3) Capital Appreciation if assigned at $30.50: $2.00

Total Net Profit if assigned and dividend collected:  $106.24
Absolute Return on Investment: ($106,24/$8,980.00) = 1.18%
Annualized Return if Assigned and Dividend Collected (22 days):  1.18%*(365/22) = 19.63%

If the stock is assigned on the ex-dividend date, the holding period is reduced to five days, and the absolute return of $54.24 equates to a 0.60% yield.  That works out to more than 44% annualized – that would be a nice result if it happens!