Called Away on TXT

I opened the TXT position last month, after unwinding my GE position.  The positioning opening post is here:  http://rescuemyira.blogspot.com/2013/06/new-positions-txt-and-win.html

It’s unusual for the Rescue My IRA account to have a position that works out with so little management effort.  I don’t take any credit for my good fortune on this one, it’s just that the market is taking care of us right now.  How long it holds we just can’t say.

Here’s the analysis.

TXT

Transactions

6/13/2013 Bought 300 shares at average share price $27.08 (total $8,131.00)
6/13/2013 Sold then rolled out 3 TXT June 2013 $27.00 for a net of $318.62

Net Profit:

1) Options Income:  = $318.62
2) Dividend Income: Ex-date was June 12, dividend is $0.02 ($6.00)
3) Capital Appreciation if assigned at $27.00:  -$48.11

Total Net Profit if Assigned and dividend collected:  $276.51
Absolute Return on Investment: ($276.51/$8,131.00) = 3.40%
Annualized Return if Assigned (50 days):  3.40%*(365/50) = 24.83%

July Deltas, and Unwinding Mr. Softie

I’m going to combine a quick look at my expiration forecast for July – it happens that this Friday is expiration for two of my positions – with the analysis for my closed MSFT position, which I unwound recently when the opportunity presented itself.

As for the two positions, the first is TXT.  I have 300 shares with a July $27 covered call written against them.  As I am writing this post on Wednesday night before the Friday expiration, the delta on this option has moved up to .82 – it has climbed steadily and was at a tepid .62 yesterday.  I’ll take a small loss on the share price if this is assigned, but I collected call premiums and dividends that add up to a net annualized return of 25%...I can live with it.

The second position up for expiration this week is the weekly call I wrote against my SPY shares.  This position was in-the-money for most of the day – the strike price is $168 – but as markets closed today the price slipped below there, and the delta is around .50.  I may get to take another bite of the apple with this one, and I will enjoy that if it happens.

Finally, I need to post about unwinding the MSFT position.  I held these 400 shares for about 15 months, and the stock was downgraded by S&P during that time.  Instead of a stop loss close, as I have done in the past, I rode this one out, eventually turning a profit, albeit one that is less than my target. 

With the MSFT sale, my portfolio consists only of S&P four- or five-star rated shares, and the SPY ETF.  But I only have ten positions, less than optimal, so that will have to be addressed soon.

Here’s the analysis of the MSFT position.  

MSFT

Position basis:  400 Shares, bought in two lots, basis $12,506.42, or $31.27 per share; Jul 34 unwound. 

Option Premiums:  -$1,049.67 (when unwinding, part of the trade means buying back in-the-money options, so there is a steep premium)

Dividends Collected:  $341.00

Stock Gain:  $1,658.33 (unwinding also means you recognize the current market price on the shares, which offsets the close-out option premium and should result in a slight increase in the calculated stock gain from plan)

Total:  $949.66

Absolute return 8.12%

Annualized return (410 days) 6.76%

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%

Unwinding JPM

The market has been on a four-day winning streak this week, so most of my positions are hitting the at-the-money or in-the-money marks.  In the case of the July contracts, several positions went deep in-the-money, which has become “unwind” territory for me. 

My JPM position was the latest of these, so I bought to close the final options on Monday morning and then sold the shares.  The result of this kind of trade is a slight improvement on the absolute return, plus there is the opportunity to get the cash reinvested immediately instead of waiting until expiration.

Right now, I have the money sitting on the sideline.  In fact, about 25% of the Rescue My IRA is sitting in cash at the moment.  I do plan to spend some time on stock picks within the next couple of days – soon as the hot streak is over!

Meanwhile, here is the analysis of the JPM position:   

JPM

Position basis:  300 Shares, basis $14,722.00, or $49.07 per share; Jul $52.50 was the final contract.

Option Premiums:  -$956.06

Dividends Collected:  $204.00

Stock Gain:  $1,663.60

Total:  $911.54

Absolute return 6.19%

Annualized return (115 days) 19.65%

New Positions: BA and PFE

With the proceeds of three sales resting in the account, I went to work immediately looking to reinvest.  I’ve noted in the past that my goal is to have around only 5% in cash in the Rescue My IRA account – the rest needs to be working in an investment.

The new positions meet my basic criteria – they are S&P 500 stocks, they are rated four or five stars by S&P, and they have dividend yields of between 3 and 6 percent annually.  I usually look for ex-dividend dates coming up during the current quarter as well, so this time I chose BA and PFE – there is still enough cash in the account for one more position, so I’ll add a post later this week. 

Here’s the analysis: 

BA

Transactions

7/2/2013 Bought 100 shares at $103.17 (total $10,317.00)

7/2/2013 Sold 1 BA Aug 2013 $105.00 for a net of $226.74

Net Profit:
1) Options Income:  = $226.74
2) Dividend Income: Ex-date is 8/7/2013, dividend is $0.485 ($48.50)
3) Capital Appreciation if assigned at $105.00:  $165.89

Total Net Profit if assigned and dividend collected:  $441.13
Absolute Return on Investment: ($441.13/$10,317.00) = 4.28%
Annualized Return if Assigned (60 days):  4.28%*(365/60) = 26.01%

PFE

Transactions

7/2/2013 Bought 400 shares at $27.58 (total $11,031.00)

7/2/2013 Sold 4 PFE Aug 2013 $28.00 for a net of $183.99

Net Profit:
1) Options Income:  = $226.74
2) Dividend Income: Ex-date is 7/31/2013, dividend is $0.24 ($96.00)
3) Capital Appreciation if assigned at $28.00:  $151.89

Total Net Profit if assigned and dividend collected:  $431.88
Absolute Return on Investment: ($31.88/$11,031.00) = 3.92%
Annualized Return if Assigned (60 days):  3.92%*(365/60) = 23.82%

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

Rolling out CAT

Wow – we only had two and half trading days so far in July, but I’ve made the best of it in the Rescue My IRA account.  Besides rolling out my CAT position, I unwound a couple of winners and used them to offset a loser, and then established new positions with the proceeds.  As a result, I have three posts going up here on the blog over the course of the next few days.

Looking at my trading history with this CAT position, I see I first sold a Nov 2012 call with a $90 strike price.  Assuming the shares are called with this new contract – also a $90 strike, for November 2013, I will have had the shares for just more than a year – let’s call it 15 months.  As the analysis shows, it is performing right on target, with an annualized return of just over 12 percent. 

Here’s the analysis of the CAT positions.

CAT

This is a 100 share position with a basis of $87.17, established in the fall of 2012. I have sold $90, $92.50, and $95 strikes, rolling them more or less monthly.  This transaction rolled out August options to November, stretching a bit to get the net premium up over $100 and to cover a last ex-dividend date. 

Total option premiums:  $796.67

Total dividend payments (including the forecast October 2013 ex-dividend):  $276.00

Total stock gain at $90:  $265.83

Total, absolute gain on the position:  $1,338.50

Total, absolute return percentage ($1,338.50/$8,717.00):  15.36%

Annualized total return percentage (held approx 450 days):  12.45%