Rolling Out KO and PFE

I took advantage of the down days last week to complete a couple of roll-outs on KO and PFE.  Rather than a longer post today, I’ll simply put up the analysis of the positions, net of fees and commissions, and assuming I collect dividends between now and the respective expirations. 

KO

400 share position established in two lots; total basis $12,160.00 and average price of $40.36.  Selling $40 strikes and rolling them on a monthly basis, rolled out to April with this trade.

Total covered call premiums:  $713.41

Total dividend payments (including the forecast February ex-dividend):  $336.00

Total stock gain at $40.00:  -$160.07

Total, absolute gain on the position:  $889.34

Total, absolute return percentage ($889.34/$12,160.00):  7.31%

Annualized total return percentage (held approx 210 days):  12.71%

PFE

300 share position, basis $9,256.00, average price per share is $30.85.

Selling $31.00 strikes, mostly working with weeklies to date, rolled out to April with this trade.

Total covered call premiums:  $233.73

Total dividend payments (February ex-date):  $78.00

Total stock gain at $31.00:  $26.89

Total, absolute gain on the position:  $338.62

Total, absolute return percentage ($338.62/$9,256.00):  3.66%

Annualized total return percentage (held 90 days):  14.84%

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%

New Position: GLW

At the moment, I am keeping about a third of my account value in cash, but I still like the portfolio model to reduce the risk of any single position going bust.  That means I really should have between 12 and 16 positions going at any given time, so the average position value needs to be reduced from where it is currently.  This is a process that will probably take a couple of months to implement.

With the funds from INTC, which had been called away last Saturday, sitting idle, I looked for a new position to get those proceeds back to work in the market.  My screen, as usual, was the following:

• S&P 500 Index standing (starts with 500 high-quality companies).
• S&P rated four or five stars (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, with the objective of setting up a multiple lot position.

Sometimes I will take a look at the Bollinger Bands and will consider trading ranges and trends - but I still haven't incorporated this as a regular part of the selection process.  In any case, by this time I am usually down to no more than ten symbols, which I balance against other companies already in the portfolio, screening for earnings announcements coming up (avoiding those), and ex-dividend dates in the upcoming quarter. 

These criteria have led me to GLW.  I’ve held that one before – it was a three-star S&P pick back then, but it has been upgraded.  There is an old post on that previous position here:  http://rescuemyira.blogspot.com/2013/05/im-not-married-to-glw-and-csx.html

I don’t expect to hold a position anywhere near that long these days – but that return met my 12% goal, and it is nothing to complain about.  Here’s the analysis for the new GLW position, net of commissions and fee: 

GLW

Transactions

Bought 300 shares at average share price $18.76 (total $5,629.00)
Sold 3 GLW Feb 2014 $19 for a net of $127.24

Net Profit:

1) Options Income:  = $127.24
2) Dividend Income: Ex-date is February, dividend is $0.10 ($30.00)
3) Capital Appreciation if assigned at $19.00:  $53.89

Total Net Profit if assigned and dividend collected:  $211.13
Absolute Return on Investment: ($211.13/$5,629.00) = 3.75%
Annualized Return if Assigned (32 days):  3.75%*(365/32) = 42.78%

Called Away for the Hat Trick: INTC

Even though there was some downward pressure on the stock, INTC finished in the money by more than a buck on Friday, and my shares were called away at the January expiration.  This is the first time in a while I’ve had shares called – I usually can manage to unwind the position a couple of weeks early, and I get the proceeds moved into a new position ASAP, but that didn’t work out for me with my January $24.00 on INTC this time.

No matter.  I had the shares for 90 days and collected covered call premiums, dividends, and stock gains on this one, making it a hat trick.  And the final returns pegged out at 4.92% absolute, and 19.95% annualized – exceeding my goal of 12%.  I can’t complain.

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

INTC

Shares:

Bought 400 shares at an average price of $23.68, total position basis $9,471.00

Shares called away on assignment at $9,582.89, average share price $23.96.

Total stock gain:  $111.89

Options:

Total options income (I rolled the $24.00 strike out three times):  $263.92

Dividend:

Total dividends collected:  $90.00

Net Profit:
1) Stock gains:  $111.89

2) Options income:  $263.92

3) Dividend Income: $90.00

Total Net Profit after Assignment:  $465.81
Absolute Return on Investment: ($465.81/$9,471.00) = 4.92%
Annualized Return (90 days):  4.92%*(365/90) = 19.95%

Rolling Out ABT and CRUS

We had an erratic trading week with a couple of down days and a couple of up days – that turned out to be a perfect opportunity for me to have a look at rolling out to more Rescue My IRA positions after I had taken care of KO:  ABT and CRUS.

The ABT position was constructed with the goal of capitalizing on a dividend run.  This year I am trying to add a Bollinger band analysis to my stock selection criteria (when I have figured out how I am going to use this routinely, I’ll add a post), and ABT was the first contract that used the new routine.  It appeared that from the basis near $37, a run to $38 was possible, and with the ex-dividend date coming up during the contract period, everything seemed to come together for the trade.

On CRUS, I 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.  There was enough volatility that I thought I could generate a good return with an in-the-money covered call using the weeklies, and so far I’ve been right. 

Here’s the analysis of the positions, net of fees and commissions and assuming I collect the dividend for ABT.

ABT

The ABT position consists of 300 shares, with a total basis of $11,110.00, or $37.03 per share.  I began by selling a January $38, and just rolled out to February.  If the position works out according to plan, I will have a hat trick of covered call, dividend, and stock gain returns.       

Total covered call premiums:  $264.73

Total dividend payments (including the forecast January ex-dividend):  $66.00

Total stock gain at $38:  $272.89

Total, absolute gain on the position:  $603.82

Total, absolute return percentage ($603.82/$11,110.00):  5.43%

Annualized total return percentage (held approx 50 days):  39.66%

CRUS

As I mentioned, the CRUS trade was meant to be a quick-turn position with a small amount invested.  The position consists of 200 shares, with a total basis of $4,017.00, or $20.09 per share.  I began by selling a January week 3 $20 and just rolled it to week 4.         

Total covered call premiums:  $211.47

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

Total stock gain at $20:  -$34.11

Total, absolute gain on the position:  $177.36

Total, absolute return percentage ($177.36/$4,017.00):  4.42%

Annualized total return percentage (held 22 days):  73.25%

Rolling Out KO

Last week I rolled out the KO position from January to February, which I have held since the summer of 2013.  I started by selling $41 strikes, but the current covered call contract is $40.  The stock was in the money at this level by the end of the week.

This roll-out brought the KO position in line with the Rescue My IRA goals for annualized returns of 12%; however, to realize this return I will have to hold it until the February contract is called away and collect a dividend.  It’s probably more likely that the position will make a little less than my goal for it, since it may be called at the ex-dividend date – but if that happens, KO will deliver an overall positive return anyway.

Here’s the analysis of the positions, net of fees and commissions and assuming I collect the dividend.

KO

The KO position consists of 400 shares, bought in lots of 300 and 100.  My total basis is $16,142.96, or $40.36 per share.  I began selling $41 strikes, but have been selling at $40 since November and rolling them monthly.     

Total covered call premiums:  $609.43

Total dividend payments (including the forecast February ex-dividend):  $336.00

Total stock gain at $40:  -$160.07

Total, absolute gain on the position:  $785.36

Total, absolute return percentage ($785.36/$16,142.96):  6.46%

Annualized total return percentage (held approx 210 days):  11.23%

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%