Rescue My IRA: February 2016 Results

So far during 2016, the market is down, with the S&P 500 index hitting a low of -10.27% on February 11, after a few days of trading between -8.00 and -10.00% that week.  There was also a week in January where the index hit similar levels. 

On February 29, the index had improved to 5.09% - that’s when I benchmarked the performance of Rescue My IRA for the month.  The account sat at -2.51% at that time, so we are still tracking better performance than the overall market.

I started with the benchmarks this month because my colleague Jeff pointed out an error in my last monthly post.  I was writing during the week where the S&P 500 was hitting those lows, and must have picked up a year-to-date metric rather than the final January number, which was -4.96% to compare with the Rescue My IRA result of -4.6% for January.   That’s slightly better than the market, but not as good as I wrote the first time! 

In any case, I appreciated the note - Jeff runs the “Just Covered Calls” board on Yahoo and I’ve learned a lot about the covered calls approach I use for Rescue My IRA from him and the other members there.

During February, the account continued along with 14 positions and a cash reserve that sits at around 25%.  I might have liked for that to have been higher heading into this correction, but time ran out, so we’re sitting tight.  As far as strategy goes for the way forward, I am going to strive to maintain this number of positions, but I will average the position value down during the year and continue to build my cash reserves to 30%.

Although trading activities consisted mainly of rolling out (and in some cases, rolling up!) covered call contracts, I did make one wash sale trade this month, unwinding my JPM position and moving the proceeds over to BAC.  I took a net loss of about $230 on the JPM for an absolute return of -3.47%, but the April contract on BAC should make up for it with an absolute gain of $398 and an absolute return of more than 6%.

Despite the loss on JPM, the account generated $1,116.17 in cash returns during February, counting dividends, covered call premiums, and the loss.  This equates to a return for the month of 0.67%, or a calculated annualized return of 7.99%.  It’s below my goal of 12% annualized, but given market conditions, I can live with it.

Here is a summary of benchmark results for February 2016 – as always, these amounts are net of commissions and fees. 

Account Status:

·        Total Account Value, 2/29/2016:  $163,406.96, which is up from the January 2016 close of $159,952.67

·        Total Cash Reserve, 2/29/2016:  $42,225.96, or about 26%; that’s up from last month’s balance of $40,750.30. 

·        Core Stock Positions (as of 2/29/2016):  AAPL (100 shares), BAC (500 shares), CMI (100 shares), CSCO (500 shares), DIS (100 shares), DOW (200 shares), FB (100 shares), GM (200 shares), IP (200 shares), NUE (200 shares), QCOM (100 shares), SBUX (200 shares), SPY (100 shares), XRX (500 shares)

Performance Metrics:

·        Option Premiums Collected (net, month of February):  $1,748.45 (1.04%)

·        Capital Gains Collected (net, month of February):  -$938.11 (-0.56%)

·        Dividends Collected (recognized on the ex-date): $305.50 (0.18%)

·        Interest on Cash Reserve: $0.33

·        Total, Absolute Return:  $1,116.17 (0.67% absolute return, estimated annualized return 7.99%) 

Next Month To-dos:

There are six positions with dividends during March:  BAC, DOW, GM, NUE, SPY, and XRX.  If all are collected, the account will receive $427.75, or 0.26 % return on the 2016 beginning balance.  So far this month, BAC is ex-dividend, and the remaining five are out of the money, so it’s not likely any will be called away on their ex-dividend dates  

Two positions have March covered call contracts that will yield capital gains if the shares are called away:  CMI and QCOM.  Both are in the money, and combined they will yield $171.01 if the shares are called – about 0.10% return on the 2016 beginning balance.

Between dividends and capital gains, the March plan accounts for about 0.36% total gain on the 2016 starting balance so far.  Covered calls will need to make up the remaining 0.64% if I’m going to achieve the 1% goal that I set for Rescue My IRA. 

I think that’s a stretch, but I’m glad to see the market coming back a little.  As I write this on Friday, March 4, the account’s balance is in striking distance of its starting point for 2016, so that’s a good thing. 

That’s it for the February update.  Until the March post, happy trading!