The Money Tree

Safely Generating Income in Retirement

Archive for January 31st, 2014

January 2014 Results

Posted by mounddweller on January 31, 2014

Fellow Traders,

Whew!  January is finally behind us.  If it is true that January generally dictates what’s going to happen in the remainder of the year, we’re going to have a wild ride in 2014.  For January, the Dow tumbled 5.3 percent and the S&P 500 slid 3.6 percent – their worst monthly percentage declines since May 2012.  It was the worst January in 4 years.  But for traders that also means there will be ample opportunities to generate substantial income through higher call and put premiums and short-term capital gains.  The key will be to remain nimble and not hang out in any one trade for too long.

I only closed two trades this month.  This is primarily due to having closed several trades at year end rather than letting them run to expiration.  My two closed positions this month were:

1) 2 CSCO JAN $20 puts which expired OTM, and

2) 2 TEVA JAN $37.50 puts which also expired OTM.

The CSCO puts returned 1.55% over a 60 day holding period while the TEVA puts returned 1.44% in 40 days.

Now let’s take a look at the trades I opened during the month.  The first one you already know a little about.  You’ll recall my last post was about my initial trade in Clorox (CLX).  As you might expect though given the recent volatility I’ve had to adjust the trade a bit as CLX like most everything else has begun to sell off.  Below is the transaction history for this trade thus far.

Trade Date Ticker Type Transaction Principal Commission Total Amount
1/2/2014 CLX SP Sold 1 FEB $87.50 Put   at $1.50  $           150.00  $             (7.45)  $             142.55
1/29/2014 CLX SP Sold 2 MAR $85 puts   at $1.60  $           320.00  $             (7.95)  $             454.60
1/30/2013 CLX BP Bought 1 FEB $87.50   Put at $1.45  $         (145.00)  $             (7.45)  $             302.15

Next up is Target (TGT).  I initiated this trade back on January 7th.  My thinking at the time was that the bad news had already been priced into TGT and given it had strong support at $62 that it would be a relatively safe trade to sell the FEB $60 puts.  Silly me!  TGT has done nothing but fall throughout the month.

Trade Date Ticker Type Transaction Principal Commission Total Amount
1/7/2014 TGT SP Sold 2 FEB $60 Puts   at $0.68  $           136.00  $             (7.95)  $             128.05
1/21/2014 TGT SP Sold 3 APR $57.50   Puts at $1.55  $           465.00  $             (8.45)  $             584.60
1/21/2014 TGT SP Bought 2 FEB $60 Puts   at $1.86  $         (372.00)  $             (7.95)  $             204.65

To rescue the trade I have rolled down to the $57.50 strike and out to the APR expiration while adding an additional contract.  I have not decided what to do from here as my APR $57.50 puts are now ITM as well.  The good news is that TGT appears to be trying to find a bottom at this point.  Today, with the DOW down over 150, TGT managed to close at $56.64, down only 3 cents on the day.

The same day I opened the trade in TGT I also opened a trade in AT&T (T).  The objective of this trade was to capture the $0.46 dividend, which I did successfully.  However, the rest of the trade hasn’t worked out quite so well.

Trade Date Ticker Type Transaction Principal Commission Total Amount
1/7/2014 T BS Bought 500 Shares T   at $34.97  $ (17,485.00)  $             (8.95)  $     (17,493.95)
1/7/2014 T SC Sold 5 JAN $35 Calls   at $0.13  $              65.00  $             (2.50)  $     (17,431.45)
1/14/2014 T SP Sold 2 FEB $33 Puts   at $0.56  $           112.00  $             (7.95)  $     (17,327.40)
1/14/2014 T SC Bought 5 JAN $35   Calls at $0.02  $           (10.00)  $             (9.45)  $     (17,346.85)
1/14/2014 T SC Sold 5 MAR $35 Calls   at $0.32  $           160.00  $             (2.50)  $     (17,189.35)

As you can see, in addition to doing the buy/write on 500 shares I also sold 2 FEB $33 puts.  T has strong support at $33 but with the recent volatility it has gotten as low as $32.01.  Next week I’ll receive $230 in dividends which will bring my net cash flow on the trade up to $534.60.

On January 16th I initiated my first trade ever in Proctor & Gamble (PG).  It too, has had its moments.  However, my trade is currently making money and the puts are OTM so I guess I can’t complain too much.

Trade Date Ticker Type Transaction Principal Commission Total Amount
1/16/2014 PG SP Sold 2 FEB $77.50   Puts at $0.78  $           156.00  $             (7.95)  $             148.05
1/30/2014 PG SP Sold 3 MAR $75 Puts   at $1.06  $           318.00  $             (8.45)  $             457.60
1/30/2014 PG BP Bought 2 FEB $77.50   Puts at $1.39  $         (278.00)  $             (7.95)  $             171.65

Next up on January 18th I entered into a trade in Cisco (CSCO).  My objective with CSCO is a bit different than the other trades I made this month.  All of the other trades were simply to generate cash flow via option premiums and dividends.  With CSCO, I want to accumulate and create a long-term holding of around 1,000 shares.  I would like to do this with a net cost per share of $19 or less.  Thus, I sold 5 FEB $21 puts at $0.37.

Trade Date Ticker Type Transaction Principal Commission Total Amount
1/27/2014 CSCO SP Sold 5 FEB $21 Puts   at $0.37  $           185.00  $             (9.45)  $             175.55

My plan is to continue to sell puts on CSCO each month until I have accumulated enough option premium such that my net cost will be less than $19/share.

My next trade was in Archer, Daniels, & Midland (ADM).  The objective of this trade was to simply generate premium income.

Trade Date Ticker Type Transaction Principal Commission Total Amount
1/23/2014 ADM SP Sold 2 FEB $40 Puts   at $1.01  $           202.00  $             (7.95)  $             194.05
1/24/2014 ADM BP Buy 2 FEB $40 Puts at   $1.72  $         (344.00)  $             (7.95)  $           (157.90)
1/24/2014 ADM SP Sold 3 FEB $39 Puts   at $1.23  $           369.00  $             (7.95)  $             203.15

Despite having to roll down and increase the number of open contracts, this trade is working out reasonably well.  It took a big tumble just one day after I sold the $40 puts so I had to roll down but was able to stay within the month of FEB.  ADM has fallen below $39 in the past week but has recovered enough to keep my puts OTM.

Last up is a failed trade in Wal-Mart (WMT).  Like CSCO, my objective is to begin collecting premium income until my net cost per share meets my targeted buy price.  Unfortunately, I am not off to good start in that regard with WMT.  Poor timing on my part had me buying to close the FEB $75 put before opening selling a new round of MAR $72.50 puts.  The stock ran away from me and I was unable to sell the MAR $72.50 for enough premium to give me a net credit from my roll-down on the FEB $75 put.

Trade Date Ticker Type Transaction Principal Commission Total Amount
1/23/2014 WMT SP Sold 1 FEB $75 Put at   $1.28  $           128.00  $             (7.45)  $             120.55
1/27/2014 WMT BP Bought 1 FEB $75 at   $1.62  $         (162.00)  $             (7.45)  $             (48.90)

The net result, as you can see, was taking a small, temporary loss.  I intend to recoup the loss and build a net credit by trying to better time my entry into the MAR $72.50 puts.

Well, there you have it.  I have had a relatively busy month.  In January I generated $1,312.85 in premiums (net of commissions).  Capital requirements totaled $126,035.

Best of luck to all of my readers as we head into February.




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