Transfer and Trades

The majority of my funds from the Ameriprise account has finally made it over to Scottrade, so at last I could begin to implement my plan to "Rescue My IRA" using a covered call strategy for increased yields and capital gains.  Despite my frustrations with how long the transfer took, I actually enjoyed a small benefit from the delay due to rising markets in early October - I calculate the total starting value of the Scottrade account as about $51K, up from a low of around $43K but far below the starting value at Ameriprise of $77K. 

We've got some work to do here.

In an earlier post I mentioned my screen and the stocks that had been identified by it:

AA, COP, CSX, DIS, GE, GLW, MRK, MSFT.  Yesterday I added two more potentials, CMCSA and PKI.  There's pretty good diversity here, especially from within the framework of a portfolio approach and using a trading plan (yet to be completed, but I will share the documentation here when that it done).

Wanting to get the money working for me as soon as possible, I already have established a number of positions:  COP, CSX, DIS, GE, and GLW, plus IP which is a holdover from the early days of the account before I settled on screening criteria (IP doesn't fit, when the options on it expire I will need to evaluate the position).

I will post over the next few days the analysis and expected results for these positions.  However, the account is not fully invested yet, there is approximately $12K remaining - in addition to the cash reserve that I set at 20%.

Qualifying Stocks/Waiting on the Transfer

Scottrade tells me that Ameriprise does all their transfers in a batch, and that is done weekly on Tuesdays.  So hopefully, later today, I will know that the transfer is done; there may be a few days of waiting for the funds to make their way into my Scottrade account.  During all this, I have been keeping busy doing research about what stocks to keep as core holdings to implement the covered call strategy around.

The folks over on Yahoo's "Just Covered Calls" board have been very helpful on this front - it seems that optimally, the investor/trader using this strategy needs to have a routine, and a second pointer was to only pursue stocks you wouldn't mind owning, in case you end up holding when they are not assigned.  I've still got some work to do on developing the routine, but in the meantime, I've developed some ground rules for choosing the initial stocks.

First, I put together a candidate list from some Motley Fool information - they have a lot of material on high-yielding stocks, for example.  Second, I took some cues off of what the other covered call group members are using.  And third, I filled out a list of 30 potentials using a "dogs of the Dow" screen: which of the 30 DJIA stocks are performing worst year to date.

With this list of thirty, I put together a spreadsheet that would further screen them using some basic rules:

• A four or five star rating from both Morningstar and S&P (surprisingly, this eliminated IP, which I currently hold, and disqualified my ACM, the company I currently work for, where I hold shares!);
• There must be a dividend, and I am looking for >1%, but optimally 2%-5%;
• The price at the time of the purchase should be near the midpoint of the 52-week high and low; and
• The companies must be a significant brand name to ensure longevity and company quality.

Now, I may revise these a bit with experience.  For example, the first rule could be subject to revision once I have more practice reading fundamentals for myself.  The third rule could be revised as well, using a "fair value" calculation (one of the Yahoo board posters has a "fair value" calculation that he uses to set a target price of 80% of fair value) - I used the 52-week midpoint as a surrogate for this to ensure that there was price upside and adequate volatility to ensure a good premium on the calls.

This screen gave me a short list of 8 candidates, as follows:

• AA
• COP
• CSX
• DIS
• GE
• GLW
• MRK
• MSFT

Next post I will write about the position rules for my shares.

Finalizing the Transfer from Ameriprise

Yesterday, I received a letter from Ameriprise advising me that they had not been able to send my old account holdings over to Scottrade.  There were six ETFs in the account and the CUSIP numbers required reinvesting profits and dividends - and apparently these CUSIPs aren't acceptable ("holdable") at Scottrade, so they sent the shares back.

I could have had Scottrade sell them anyway, but that would have involved a broker fee of $50 each - $300 total.  That would have taken a little time and worry to make up, so I had them sent back over to Ameriprise and began trying to navigate how to dispose of them.

Finally, I get this letter, dated 10/13/2011, which says to call them and they will take care of it.  It also says that if I didn't do so within 30 days of the date of the letter, they'd reopen the old account with these shares "subject to applicable fees."

I got on the horn with them this morning.  A very pleasant rep named Jeffrey took my order and arranged for the sale, then called me back to confirm. The funds will settle on 10/24 and I can then roll them over to Scottrade.

The good news is the estimated proceeds from these ETFs are $42K or so.  I'm sure there will be fees.  But if the bulk of that is transferred, when combined with what already came over, it means my starting point is $48K - remember from the first post on this blog, my initial goal will be to rebuild the account to $77K as fast as I can. 

Only $29K to go!

Account Status, and Next Trade

I spoke with my Scottrade branch manager today, who called to tell me my COP option was assigned...I told him that I knew already, and that I was working on my next trade.  I'll discuss that in a minute, but first let's go to the status of the account transfer from Ameriprise over to Scottrade.

You'll recall from an earlier post that I had intended to close out my account over at Ameriprise in order to improve the account's practivity and get more control over the investments. There was some issue with the transfer, and several of the previous ETFs could not be held in the Scottrade account, so they had to be transferred back to Ameriprise, where they sit in limbo because my old broker cannot "see" my account on his screen. 

Frustrating. No likey. Part of why I moved the account.

Moving on to the next transaction.  I know I have a lot to learn about the covered call process, but I decided to set up a November trade.  I created a screen on Scottrade to get a few candidate stocks - looking for S&P Stars ratings of 4 or 5, and dividend yields in excess of 3%.  This is what I am working with now, I will probably improve this with payout ratios as I learn more.

Another example of what I want to beccome proficient on is the time value of the premiums.  That will come.

For the next trade I decided on IP - International Paper, which was trading around $25.30 per share today.  The stock pays a dividend of $26.25, goes ex- in November during options expiry week.  I bought 200.  Then I sold 2 contracts of the November 26, picking up $196 or so.

If I am assigned on this trade, I will net around $297 for the sale and the options contracts, that's around 5.8% for about a month on this trade. 

If I am not assigned, I will receive about $52.50 in dividends and look at whether I want to take profits or do another covered call.  I'll keep you posted.

Money's in Transit, but First Transaction Anyhow

My transfer from the old Ameritrade account has hit a speed bump.  Some of their ETFs are not holdable in the new Scottrade account, so they were sent back and I have to do something to get the CUSIPs changed.  Honestly, I just want out of them at this point.

Meanwhile, three of the ETF holdings did transfer, and I disposed of them quickly this morning (lucky me, they were up $40 from yesterday.  I followed the sales with a simple covered call trade as follows:

Buy 100 sh. Conoco Phillips (COP) @ $63
Sell COP Oct 65 Covered Call at .95

There is a dividend date of record between now and the October expiry, the quarterly amount is .66...my goal was to be able to get this cash too, but it looks like the option expiry is before the dividend ex- date.

If my option is assigned, I will have a capital gain of about $200, an option premium of $95; and costs of around $32.  If it's not assigned, I'll collect the dividend of $66, in addition to the option premium, and costs are only $15; I'll revisit the stock strategy afterwards. 

As it stands today, the transaction will net between $140 and $260 - between three and five percent on the value of this IRA. This is an estimate and wouldn't be bad for the month of October, with the downside being I am locked in the position for a couple of weeks.

Baby steps, though.

Have I got this right?  Covered call strategists are welcome to comment.