Rolling out IP

During the downward sloping trading action last week – we are all in a tizzy over Syria, don’t you know – I rolled out a couple of positions that had September expirations.  Today I will post about rolling out the IP position in the Rescue My IRA account and the smaller position I have in my stand alone account, and I will post about rolling out TRV later in the week.

As it stands today, I have only one September contract left, BA 105, which is in the money.  I will keep an eye on this one as expiration approaches next week to see if I can unwind it, and if not, we’ll let it run to see if it is called away.

Here’s the analysis of the two positions.

IP

The current Rescue My IRA IP position consists of 200 shares.  My basis is $47.93 per share, so for most of the holding I’ve had $48 strike prices.  I also rolled up when I made this trade, so my strike is now in-the-money $49; this trade also rolled out my contracts from September to October.

Total option premiums:  $528.42

Total dividend payments:  $120.00

Total stock gain at $49:  $197.89

Total, absolute gain on the position:  $846.31

Total, absolute return percentage ($846.31/$9,585.00):  8.83%

Annualized total return percentage (held approx 150 days):  21.49%

IP – Conventional Account

This is a 100 share position I established at about the same time as the one above.  The share basis is $47.76 on this position, and I rolled up to $49 and out to October with this trade as well. 

Total option premiums:  $221.45

Total dividend payments:  $60.00

Total stock gain at $49:  $107.24

Total, absolute gain on the position:  $388.69

Total, absolute return percentage ($388.69/$4,775.65):  8.14%

Annualized total return percentage (held 150 days):  19.80%

Rescue My IRA Results: August 2013

For most of August we had a good month of market action.  The Rescue My IRA showed a book value above $149K for a couple of days, as a matter of fact.  However, by the end of the month, the worries about what’s happening in Syria and the continued fear about upcoming Fed action to their toll, even as we continued to hear that the economy is still improving, and the balance ended up retrenching at around the $145K level.

 

That’s still up quite a bit from where the account started at the beginning of the year, around $133K – so needless to say, I think I will stick with covered calls.

As far as an overview of investing activities for the month of August goes, this was another good month for stock gains.  I unwound a couple of in-the-money contracts and took profits on them, while rolling out the out-of-the-money expirations.  That approximately $800 in gains, plus dividends of about $380, combined to get me very close to my goal of an average of 1% per month.  The balance of the returns came from a steady pace on adjustments – either roll-outs or roll-ups, which earned me more than 0.5% this month in about 15 transactions. 

For the monthly prognosis, I plan to continue to stay invested at the 90-95% level, even with a little consolidation going on.  Once there is some clarity to Syria and one the Fed’s intentions are clear, I think the market will regroup and we’ll see another one or two percent gains in the balance of the year.  I still plan to upgrade my Scottrade account to give me more flexibility in a steady/consolidation market next year, but in the meantime, like I said above, it’s covered calls for me.

So, finally, here is a summary of the Rescue My IRA statistics for August 2013, based on my August statement: 

Account Status:

·         Total Account Value, 8/30/2013 Market Close:  $145,215.47 (vs. July close of $147,023.95)

·         Total Cash Reserve, 8/30/2013 Market Close:  $11,432.72

·         Core Stock Positions (as of 7/26/2013):   AFL (200 shares), BA (100 shares), CAT (100 shares), CMI (100 shares), DVN (200 shares), IP (200 shares), KO (300 shares), PFE (400 shares), PSA (100 shares), SPY (100 shares), TGT (100 shares), and TRV (100 shares)

Performance Metrics:
Option Premiums Collected (net, month of August):  $713.58 (0.54%)

Capital Gains Collected (net, month of August):  $813.68 (0.68%)

Dividends Collected (recognized on the ex-date): $380.00 (0.29%)
Interest on Cash Reserve (estimated): $0.11
Total, Absolute Return:  $1,907.37
Absolute Return, Percentage Basis:  1.44%
Annualized Return, Percentage Basis:  17.47%

Next Month To-dos:

September will be a good month for dividends – about $411 is forecast from five positions:  TRV, DVN, PSA, KO, and SPY.  Only TRV is subject to a September contract, and it is out-of-the-money at the time of this post.  That return is about 0.31% on the account value.

There are currently three September contracts:  TRV, noted above, IP, and BA.  The BA contract strike price is $105.00 and it is in the money, while the others are not.  If all three positions wind up being called away, my forecast gain is $186 or so, only about 0.14% return on the account, combined with dividends totaling nearly half of my monthly 1% goal, so there is still some work to do to generate the returns I want. 

That’s it for now – I’ll update in a month! 

Selection Criteria, and New Positions (TGT and TRV)

The August contract date has come and gone, but I did not have any open covered calls on Friday, since I had unwound a couple of my August positions or rolled them out until September.  It looks like I was lucky on my timing, since the markets took a scare about upcoming Fed action and had a couple of down days in a row.

Meanwhile, I have two new positions to report today, bought with the proceeds of the unwinding I did earlier in the month:  TGT and TRV.  Before I provide the analysis – my position plan for these two, if you will – let me recap my selection criteria.  I’m hoping that these criteria will serve me well in the consolidating market I expect for the next few weeks!

I choose my stocks based on the following:

• S&P 500 Index standing (starts with 500 high-quality companies).
• S&P rated four or five star stocks (narrows down to about 200 companies).
• I look at annual dividend yield next, seeking from between 2 and 5 percent.  This criterion also provides me with a little up-side opportunity and down-side protection in the shares, and adds a cash flow factor to the account.
• Next, I will try to have a price criterion, depending on the funds available in my account.  If I can set up a multiple lot position, I like that, and I also want to keep the bulk of the positions at less than 10% of the account value – but also to be sure that I have between 12 and 16 positions going at any one time for diversification.
• By this time, I am down to ten or fewer symbols, which I balance against other companies already in the portfolio, and screen for earnings announcements coming up (avoiding those), and ex-dividend dates in the upcoming quarter.  These generally break any ties when choosing positions (for example, if I were considering an investment choice between MRK and PFE).

So that’s how I arrived at TGT and TRV.  Here’s the analysis, or position plan, if you will – all values are net of commissions and fee: 

TGT

Transactions

8/13/2013 Bought 100 shares at average share price $70.80 (total $7,079.99)
8/13/2013 Sold 1 TGT Sep 2013 $72.50 for a net of $61.24 (I usually try for $100 net, but I wanted to stay in the next calendar month)

Net Profit:

1) Options Income:  = $61.24
2) Dividend Income: Ex-date is Aug 19, dividend is $0.43 ($43.00)
3) Capital Appreciation if assigned at $72.50:  $152.90

Total Net Profit if Assigned and dividend collected:  $257.64
Absolute Return on Investment: ($257.64/$7,079.99) = 3.64%
Annualized Return if Assigned (30 days):  3.64%*(365/30) = 44.27%

TRV

Transactions

8/9/2013 Bought 100 shares at average share price $82.11 (total $8,210.99)
8/9/2013 Sold 1 TRV Sep 2013 $82.50 for a net of $135.74

Net Profit:

1) Options Income:  = $135.74
2) Dividend Income: Ex-date is Sep 6, dividend is $0.50 ($50.00)
3) Capital Appreciation if assigned at $82.50:  $21.90

Total Net Profit if Assigned and dividend collected:  $207.64
Absolute Return on Investment: ($207.64/$8,210.99) = 2.53%
Annualized Return if Assigned (35 days):  2.53%*(365/35) = 26.37%

Rolling Out IP

After rolling out SPY and BA, and then unwinding the COP and WIN positions, the only August contract I had left in Rescue My IRA was IP.  Then I rolled out to September – so there won’t be any assignments this month.  I’ve also already established replacement positions in TRV and TGT – I’ll post about those later in the week.

Between all of this action, the account has already generated 1% in cash flows for the month – really, I’m just waiting on a few ex-dividend dates now.  Maybe a few more adjustments, but most of the contracts I have now are September covered calls.

Here’s the analysis of the IP position – as with WIN, I have it in the IRA and conventional accounts.

IP – Rescue My IRA position

A 200 share position with a basis of $47.93/share, total $9,585.00. 

Total option premiums:  $501.43

Total dividend payments (including the May and August):  $120.00

Total stock gain at $48:  -$2.11

Total, absolute gain on the position:  $619.32

Total, absolute return percentage ($619.32/$9,585.00):  6.46%

Annualized total return percentage (held approx 120 days):  19.65%

IP – conventional account position

This is a 100 share position with a share basis is $47.76, total $4,775.65.

Total option premiums:  $208.96

Total dividend payments (counting ex-dates through the contract term):  $60.00

Total stock gain at $48:  $7.24

Total, absolute gain on the position:  $276.20

Total, absolute return percentage ($276.20/$4,775.65):  5.78%

Annualized total return percentage (held 120 days):  17.59%

Unwinding COP

Just as I did with the WIN position last week, I unwound the COP position in Rescue My IRA last Thursday.  I held it for about 100 days and the position did not quite meet my goal of a 12% annualized return – it earned 10.60% annualized to be exact, so it was close.  In the past I have found this stock unpredictable in the market and when I made the investment it was one of these “hold your nose” situations we’re all hearing about lately.

The stock immediately began to decline below my basis after I bought it, and I chased it down with my covered call strategy by closing out higher strikes for lower ones.  It began to come back, so I had to roll-up, giving up call premiums in the meantime. 

I wasn’t prudent or patient this time.  I’ll keep that in mind when I’m choosing stocks in the future.

Here is the record on this position, net of fees and commissions:

COP

Shares:

Bought 200 shares at an average price of $64.18, total position basis $12,835.00

Sold on unwind 200 shares at $13,442.76, average share price $67.21

Total stock gain:  $607.76

Options:

Total options income:  -$505.07

(As I’ve mentioned in posts about unwinding positions, the higher sell price is the result of buying to close option premiums, which can turn this revenue source negative over the course of the position)

Dividend:

Total dividends collected:  $270.00

(I chose this position with a few days before ex-date, so I was able to collect two dividend payments during the holding period...the dividend is one of the attractive aspects of this stock.)

Net Profit:
1) Stock gains:  $607.76

2) Options income:  -$505.07

3) Dividend Income: $270.00

Total Net Profit after Assignment:  $372.69

Absolute Return on Investment: ($372.69/$12,835.00) = 2.90%
Annualized Return (100 days):  2.90%*(365/100) = 10.60%

Unwinding WIN

Once a position reaches expiration month, if it is in the money, sometimes the option’s delta reaches 1.00.  When that happens, the value of the option changes in step with the value of the underlying stock, and it is a good time to consider unwinding the position.  This process involves buying to close the option and selling the stock at the current price.

In the case of my Scottrade account, I will usually make a little more cash than I would if I waited until expiration.  Part of this extra return is generated because the sell commission on an assigned position is about $18.00, while the commission on the option and stock trade totals about $14.00.  There is sometimes a little extra return in the stock price during the time lag between closing the option and selling the stock also – but I haven’t found that to be predictable yet.

The main opportunity is from being able to generate new covered call premiums and stock gains from a new position opened up two to three weeks earlier than you would have been able to, had you waited.  That’s been the reason I’ve unwound positions over the last two or three months, and it is the case with my WIN position.

I’ll report two “unwind” transactions today – one for the 500 share position I had in Rescue My IRA, and one for the 300 share position I had in my conventional account.  The second position was established a few days after the Rescue My IRA one, and the returns were just a little less – but both positions worked out very well for me.  I might just take another look at WIN next month, as the next ex-dividend date approaches.

Here’s the analysis – net of fees and commissions, of course.

WIN (Rescue My IRA position)

Shares:

Bought 500 shares at an average price of $7.92, total position basis $3,962.00

Sold after unwinding 500 shares at $4,167.92.

Total stock gain:  $205.92

Options:

Total options income:  -$36.51

Dividend:

Total dividends collected:  $125.00

Net Profit:
1) Stock gains:  $205.92

2) Options income:  -$36.51

3) Dividend Income: $125.00

Total Net Profit:  $294.41

Absolute Return on Investment: ($294.41/$3,962.00) = 7.43%
Annualized Return (60 days):  7.43%*(365/60) = 45.20%

WIN (Conventional account position)

Shares:

Bought 300 shares at an average price of $7.97, total position basis $2,392.00

Sold after unwinding 300 shares at $2,497.95.

Total stock gain:  $105.95

Options:

Total options income:  -$64.03

Dividend:

Total dividends collected:  $75.00

Net Profit:
1) Stock gains:  $105.95

2) Options income:  -$64.03

3) Dividend Income: $75.00

Total Net Profit:  $116.92

Absolute Return on Investment: ($116.92/$2,392.00) = 4.89%
Annualized Return (60 days):  4.89%*(365/60) = 29.74%

Rolling out SPY and BA

As far as trading activities in Rescue My IRA go, this month hasn’t been a busy one.  That pace may pick up, as there are still four positions with August covered calls, but to date the trades have consisted of a couple of roll-outs. 

On SPY, the S&P 500 index ETF, I’ve done a couple of weekly covered calls, and in the last transaction, I changed to an August monthly.  For BA, with the ex-dividend date approaching yesterday, I saw an opportunity to roll-out and secure the dividend payment while adding another percentage point in the absolute return on the shares.

Here’s the analysis of the two positions.

SPY

The SPY position consists of 100 shares with a basis of $168.46.  I’ve sold weeklies at $168.50 and $169, and this most recent transaction was the Aug $169.

Total option premiums:  $263.97

Total dividend payments:  $0.00

Total stock gain at $169:  $20.21

Total, absolute gain on the position:  $284.18

Total, absolute return percentage ($284.18/$16,846.00):  1.69%

Annualized total return percentage (held approx 30 days):  20.53%

BA

This is a 100 share position I established in June with a basis of $103.17. 

Total option premiums:  $389.23

Total dividend payments:  $48.50

Total stock gain at $105.00:  $165.89

Total, absolute gain on the position:  $603.62

Total, absolute return percentage ($603.62/10,317.00):  5.85%

Annualized total return percentage (held 90 days):  23.73%