Unwinding CSCO and SPLS – and Dumping TLT

Last month I learned about unwinding positions as a close out transaction if there’s been a run that exceeds the contract’s strike price.  I saw that opportunity for my CSCO shares this week, where I was waiting to have the shares called away later this month, and on SPLS, where I had a September contract.  There was a healthy gain overall on CSCO, but even with the share gain on SPLS I ended up in a more or less breakeven spot.

I took advantage of these two trades to bury my losses on TLT, which was my first attempt at including ETFs in the portfolio.  TLT is a bond fund, and the recent action in the markets have punished bond prices…and I don’t see that being corrected through the end of the year.  I decided to pull the trigger since I could cover the loss with the other gains.

Here’s the analysis of the three positions:

CSCO

Position basis:  500 Shares, basis $9.532.18, or $19.06 per share; the stock went ex-dividend on July 1, and I will collect that dividend. The position doubled my performance goals of 12% annualized.

Option Premiums:  -$1,412.18 (I had rolled up CSCO a few times in the past)

Dividends Collected:  $252.00

Stock Gain:  $2,825.60

Total:  $1,665.42

Absolute return 21.93%

Annualized return (300 days) 26.68%

SPLS

I still remember the day I bought my SPLS shares in Fort Worth last year.  I thought that a five-star rated retail stock would be good diversification in my portfolio.  Basically I ended up with dead money for 17 months!

Position basis:  700 Shares, basis $10,288.42, or $14.70 per share.

Option Premiums:  -$1,156.05

Dividends Collected:  $420.00

Stock Gain:  $975.36

Total:  $101.31

Absolute return 1.27%

Annualized return (510 days) 0.91%

TLT

When I bought TLT, my first attempt to use ETFs for covered calls, I thought I was making a good decision to diversify with some bond holdings in addition to basic stocks.  I did not anticipate what would happen to the prices of the underlying assets if and when interest rates started going back up.  Essentially, the resulting losses were my motivation for unloading the shares as soon as I could, which I did after taking advantage of the CSCO trade above.

Position basis:  100 Shares, basis $12,329.00, or $123.29 per share.

Option Premiums:  $144.22

Dividends Collected:  $78.57 (includes the July ex-dividend date)

Stock Gain:  -$1,357.10

Total:  $1,134.31

Absolute return:  Negative, not calculated!

Annualized return (150 days): Also not calculated

Taking a loss on ADM - and Moving on!

It seems like the weather has taken a toll on many of the agribusiness stocks, including ADM, which I had a position in.  It took quite the tumble and I don’t expect it will come back for some time.  So I bailed.

It’s the second position I’ve decided to prune under the Rescue My IRA account approach.  The other was ACM…the symbol shares so much in common maybe it shouldn’t be a surprise that they performed so similarly!

Here’s the history:

ACM – 300 Shares, basis $30.82, cost $9,246.88

Option Premiums (total):  $597.97

Dividends Collected:  $52.50

Stock Loss:  -$1,724.05

Total:  -$1,073.58

Of course, the absolute return and the annualized return are negative.  I won’t even bother to report them.  I am just lucky that so much of the capital loss was offset by the premiums and dividend – and that the market has the value of the account up for the year despite taking the loss.

I have rolled these funds into a new CAT position.  I’ll follow up with a post on that soon.

Closing out the Stinking AA Position

Although it is a DJIA stock, there are a lot of reasons not to like AA.  One of them, for me at least, is a political reason - the Secretary of the Treasury during the Bush administration was the former CEO.  Just as the Bush administration left lasting marks on the US economy, I'm sure there's still an O'Neill stink of some kind at AA.

One more piece of advice:  you don't have to wear the funny hat, no matter how nicely they ask.  Bush (more likely Cheney) fired him shortly after this photo was published.

Also, the stock is underperforming, even for a Dogs of the Dow candidate, and it has a miniscule yield.  I've learned my lesson about choosing positions for the Rescue My IRA portfolio just because I wanted to have 90% of the funds invested.  Today I bought back the previous options and sold the shares at a loss.  We'll chalk it up to experience.

Here are the results:

Total Option Premiums:  $127.96
Dividends: $0.00
Total Stock Gain (Loss):  ($609.00)
Total Absolute Return:  ($481.04)
Total Absolute Return Percentage:  -11.7%
Annualized Return (held 75 days):  -57%

This is why I use the portfolio approach.  Sometimes you're just going to have a stinker in there.