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%.

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.

COP Assigned - First Trade Complete

Logging into my Scottrade account today, I see that my COP option has been assigned well before the ex-dividend date for the shares.  The market has been rising lately, and it took these shares with it, obviously.

So here's a quick recap on how that covered call trade worked out for me:

Cost (net) of 100 shares of COP:  $6,315.91
Oct 65 call on COP premium (net): $87.74
Price (net) on assigned shares: $6,482.87

So I netted $254.70 off of the first trade with this strategy, which is close to the top of the range I had estimated, which was between $140-260.  That's 4% on the trade.  My money was locked in the stock for about 10 days.

The only downside, I didn't hold the stock through the ex-dividend date, so there's no residual revenue to be made off of this one.  But I didn't expect that to be the case; it's why I didn't include it in the estimate.

Looking for the next one.  Baby steps.  Comments welcome.

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.