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Safely Generating Income in Retirement

Archive for June, 2014

May 2014 – Results

Posted by mounddweller on June 1, 2014

Fellow Traders,

My results in May were kind of a mixed bag.  I had some trades that worked well and others that didn’t.  The frequency of my trading was impacted by several factors:

(1) responsibilities at my day job increased and so I have less time to follow my trades during the day,

(2) my personal life has also become more hectic, and

(3) the seemingly irrational movement down in volatility means premiums are very low and thus the risk/reward ratio does not seem favorable to me.

With that as a back-drop let’s look at the results of the trades I did make this month.  First, let’s look at the closed trades.

(1) Coca Cola (KO) – I am building a long-term position in KO.  While accumulating shares using dividend reinvestment I also want to be opportunistic in selling CCs against my existing shares and selling NPs until assigned to acquire additional shares.  On 4/16 I sold MAY $40 calls at $0.82 believing that KO had peaked and was destined to head back down for a short period of time.  Unfortunately, this was not the case and so on 5/14 I had to buy back my MAY $40 calls at $1.14 to avoid having them called away.  This resulted in a loss on the trade.  I am planning on re-entering the trade again when it appears KO has peaked and is ripe for a short-term fall.

(2) Kinder Morgan (KMI) – Like KO, I want to build a long-term position in KMI.  I feel KMI is a bargain at current price levels.  Consequently, for the past several months each time KMI approaches $32.50 I sell puts at this strike price.  On  4/25 I sold MAY $32.50 puts at $0.50.  These puts expired OTM on 5/14.  Thus, net of commissions my ROIC was 1.45% with a holding period of 22 days.

(3) Family Dollar (FDO) – I have made a couple of trades in FDO in the past 3 months.  Both were profitable.  My latest trade was initiated on 3/21 when I sold the APR $57.50 puts for $0.96.  As many of you are aware FDO has been volatile these past several months due to lackluster performance and rumors of them being bought.  Consequently, I had to roll my position down and out to the MAY $55 puts.  These MAY $55 puts expired OTM on 5/17.  My ROIC on this trade in FDO, net of commissions, was 1.38% with a holding period of 57 days.

(4) Franklin-Templeton (BEN) – Like FDO, I have made a couple of trades in BEN these past few months.  Both were profitable.  My latest trade was initiated on 4/7 when I sold the MAY $50 puts at $0.70.  These puts were never in danger of becoming ITM and expired OTM on 5/17.  Net of commissions, my ROIC was 1.32% over a holding period of 40 days.

(5) Lowe’s (LOW) – I initiated my trade in LOW back on 4/7, selling the MAY $46 puts at $0.75.  On 5/6 I had to buy back the MAY $46 puts and ended up selling a higher quantity of JUN $44 for a net credit.  On 5/23 I was able to buy back the JUN $44 puts for $0.19, thus closing out the trade early.  My ROIC, net of commissions, was 1.99% with a holding period of 46 days.

(6) Procter & Gamble (PG) – This was my very first Bollinger Band (BB) strategy trade.  The basic premise of the strategy is to buy stock and/or sell NPs as a stock is bouncing off it’s lower BB.  PG seemed like the perfect set-up and a low risk trade for my first attempt at mastering this strategy.  PG hit and bounced off it’s lower BB on 5/21.  On 5/22 I bought shares of PG at $80.20.  Looking at the chart I believed PG would be able to make it back up to the middle of the BBs (essentially the 20-day MA).  Alas, this was not the case.  The stock’s rise stalled out before even hitting $81.  Not wanting to risk large losses I sold my shares as soon as it became apparent to me that the trade wasn’t going to work out.  On 5/27 I sold my shares in PG at $80.27.  Net of commissions I lost about $10 on the trade.

(7) Exelon (EXC) – Yes, believe it or not I am out of EXC with a profit!  Long time readers of my blog will know that I’ve been working my way out of this position for a very long time.  This trade actually started in APR 2010 by selling puts at the $42.50 strike.  A lot has happened since then.  I’ve collected four years of dividends, sold CCs and NPs numerous time and have had stock put to me and called away at least once each.  Through all of this I was able to reduce my net cost.  Finally last month, prior to EXC going ex-dividend, I sold CCs at the $35 and $36 strikes.  A portion of my shares were called away from me at $35 by someone wanting to capture the dividend.  The $36 CCs expired OTM.  I will be receiving the dividend on these shares.  It should hit my account later this month.  Then, this past week, I sold all of my remaining shares at $36.10.  The final result will be a ROIC of around 12% but the holding period is just over 4 years so the annualized return while beating US Treasuries is nothing to brag about.  What I will brag about though is that I refused to give in and exit the position at a loss.  By selling NPs and CCs when the opportunity presented itself and collecting the dividends over time I was able to successfully exit the trade.

(8) Microsoft (MSFT) – On 5/6 with MSFT at $39.06, I sold the 30MAY $38 puts at $40.  This past Friday those puts expired OTM.  My ROIC was 0.98% with a 24-day holding period.

Now let’s look at the new trades I opened this month.

(1) Back on 5/12 I expanded my long position in $VIX JUL $14 calls.  I bought 2 more calls at $1.95.  Thus far this trade isn’t looking very good.  The market continues to defy gravity by going higher while driving the VIX lower and lower.  The long expected summer slump has yet to occur.

(2) Lastly, I sold more puts on EXC.  I know, I’m stupid.  I can just hear you saying, didn’t you just get yourself out of a long-term losing trade in EXC.  Yes, I did.  However, in this case the market is moving in my direction.  When I originally opened my trade in EXC back in 2010, I thought the stock was bottoming out.  Alas, it continued to fall much further than I thought possible.  This time, I waited until I was sure the market was moving in my favor.  Back on 5/20 I sold the JUN $33 puts at $0.35.  EXC was trading at $34.04.  Friday, it closed at $36.83.  Thus, I should be able to buy to close my puts for pennies on the dollar in the coming week.

Well, that’s it for this month.  As I mentioned at the beginning of this post, I have slowed the pace of my trading substantially.  Put premiums are extremely low right now.  I’m keeping my ‘powder dry’ until things pick back up again.

Best of luck to all my trading friends in the coming month!

Regards,

Troy

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