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!