Adding on to CRUS

Frequent readers will remember that I have made an exception on my usual criterion of only using S&P 4- or 5-star stocks:  I am currently holding FB and CRUS, both 3-star stocks.  My goal with these two positions is to learn about managing volatility and risk.

On CRUS, I originally took a flyer on a 200-share position – low committed capital – and an S&P 3-star stock with no dividend, where I would normally limit my selections to 4- or 5-star stocks that pay from two to five percent annually.  The day before yesterday, after I established the new GLW position, I decided to add 200-shares and sell the January week 4 $20 on them – so I now have a four-lot position with this stock.

Here’s the analysis of the position, net of fees and commissions - if I took the time to break this down into the two 200 share lots, the return would be pretty exceptional due to the duration of the trades; however, to keep this brief I will report performance as an average of the two lots: 

CRUS

The position now consists of 400 shares, with a total basis of $8,038.00, or $20.10 per share. 

I originally sold January 2014 week 3 $20 strikes, but have rolled that out to week 4.  The position is currently in-the-money.

Total covered call premiums:  $441.95

Total dividend payments (no dividend on CRUS):  $0.00

Total stock gain at $20:  -$55.11

Total, absolute gain on the position:  $386.84

Total, absolute return percentage ($386.84/$8,038.00):  4.81%

Annualized total return percentage (held approx 22 days):  79.85%

Three New Positions: ABT, CRUS, and PFE

Last Friday I added a couple of new positions in CRUS and PFE.  After the JPM early call I had a lot of cash on the sidelines; I’ve decided that I should not have more than 33% of the account value sitting out of the market – that is part of what it is going to take for me to make the returns I expect in the Rescue My IRA account.

These positions will provide examples of new strategies I’m putting to use in the account this year.  For one thing, I have relaxed the criteria of S&P four- or five-star ratings; I will choose from three-star stocks that are part of the S&P 500 but I expect to limit the amount of capital invested in three-star positions to less than 20% of my total holdings.  Also, to increase turnover in the account with the intent to generate additional covered call premiums, I am using weeklies for some trades.

While I am building up experience and confidence with the new strategies, I’m taking smaller positions to get comfortable with the analysis and procedure.  I only put together a 200 share position in CRUS as a result, laying out just over $4,000 for the trade.

I missed posting on ABT, a new position established in late December.  So I will make up for that in today’s post as well.

Here’s the analysis, or position plan for each of the three stocks – all values are net of commissions and fee: 

ABT

Transactions

Bought 300 shares at average share price $37.03 (total $11,110.00)
Sold 3 $38 Jan 2014 for a net of $184.24

Net Profit:

1) Options Income:  = $184.24
2) Dividend Income: Ex-date is January, dividend is $0.22 ($66.00)
3) Capital Appreciation if assigned at $38.00:  $272.89

Total Net Profit if Assigned and dividend collected:  $523.13
Absolute Return on Investment: ($523.13/$11,110.00) = 4.71%
Annualized Return if Assigned (20 days):  4.71%*(365/20) = 85.93%

CRUS

Transactions

Bought 200 shares at average share price $20.09 (total $4,017.00)
Sold 2 $20 Jan wk 3 for a net of $110.48

Net Profit:

1) Options Income:  = $110.48
2) Dividend Income: (rule breaker – no dividend) $0.00
3) Capital Appreciation if assigned at $20:  -$34.11

Total Net Profit if Assigned and dividend collected:  $76.37
Absolute Return on Investment: ($76.37/$4,017.00) = 1.90%
Annualized Return if Assigned (15 days):  1.90%*(365/15) = 46.26%

PFE

Transactions

Bought 300 shares at average share price $30.85 (total $9,256.00)
Sold 3 $31 Feb wk 1 for a net of $133.24

Net Profit:

1) Options Income:  = $133,24
2) Dividend Income (February ex-date): $76.00
3) Capital Appreciation if assigned at $31:  $26.89

Total Net Profit if Assigned and dividend collected:  $238.13
Absolute Return on Investment: ($238.13/$9,256.00) = 2.57%
Annualized Return if Assigned (30 days):  2.57%*(365/30) = 31.30%

Called Away Early on GE

Mary and I were traveling last week – Las Vegas and the Grand Canyon.  It was a great trip, and while we were away I got a not that the most recent position I had established – a GE trade with a Sep Wk 4 covered call – had been assigned on the most recent ex-dividend date for the shares.

This is a pretty exceptional result – I held that position for six days and earned 1.05% on the trade…which works out to an astounding 63.75% annualized!  Even though the cash return was only $100, that is likely to be the best annualized rate of return I generate on a trade this year.

We were in Las Vegas - this trade and our experience at the Tropicana were almost enough to convince me to sit at a Blackjack table.

Here is the record on this quick turnaround position, as usual, net of fees and commissions:

GE

Shares:

Bought 400 shares at an average price of $23.85, total position basis $9.521.00

Sold on assignment 400 shares at $9,582.89, average share price $23.96

Total stock gain:  $51.89

Options:

Sold to open $24 Sep Wk 4

Total options income:  $47.99

Dividend:

I did not collect the dividend on these shares, as the position was called away on the ex-dividend date.

Net Profit:
1) Stock gains:  $51.89

2) Options income:  $47.99

3) Dividend Income: $0.00

Total Net Profit after Assignment:  $99.88

Absolute Return on Investment: ($99.88/$9,521.00) = 1.05%
Annualized Return (105 days):  1.05%*(365/6) = 63.75%

New Position: SPY

It has been a busy month for the Rescue My IRA account.  With the market rolling along at new highs, several of the July positions reached the point where it was lucrative to unwind them, so I did; as of this morning I am only holding the TXT position with a July contract.  That means I have much more cash in the account than usual, but I am loathe to reinvest at the moment until we have a few down days in a row – some consolidation that will give a read on where the market is headed next.

It’s been on my do-list to find a replacement ETF after I dumped TLT recently.  I chose SPY for this purpose.  I understand the index behind it better and it is based on S&P 500 stocks, which is what the current portfolio is predominantly comprised of.  

To further expand my learning opportunities, in addition to taking a position with an ETF, I wrote a weekly against it, choosing a July Week 4 2013 contract with a little upside in the strike price (although transaction costs will mean a net loss of about $20 on this trade).

I am very satisfied with the .62% potential return for this investment over five days (that works out to an annualized rate of 59%), but there are risks in this approach that are different from my typical buy-write approach, and that’s what I’m looking forward to learning more about here.  We’ll see how it goes, and I will post a periodic update on SPY, though not necessarily weekly if I end up with a lot of roll-outs (which I would like very much, by the way!).

Here’s the analysis on the new SPY position: 

SPY

Transactions

7/16/2013 Bought 100 shares at $16,802.90
7/16/2013 Sold 1 SPY Week 4 July 2013 $168.00 for a net of $124.74

Net Profit:

1) Options Income:  $124.74
2) Dividend Income: Next forecast ex-date is September

3) Capital Appreciation if assigned at $168:  -$20.01

Total Net Profit if Assigned:  $104.73
Absolute Return on Investment: ($104.73/$16,802.90) = 0.62%
Annualized Return if Assigned (5 days):  0.62%*(365/5) = 56.87%