Saturday, May 16, 2015

Financial Planning Weekend Update - May 16, 2015

Well, that was a wild month, even though it was tightly range bound.  Fortunately nothing really broke down and I ended with a net asset value gain of $4723.00. As you can see, 4 positions would have expired in the money and been assigned. As a result I used the roll-out strategy to preserve my underlying in three of them. Since this is paper trading I've set some rules for myself so my results will be consistent from month to month:
  • Use prices as of 3:00 PM on Friday (time value has pretty much evaporated by 2:00-2:30)
  • Use the "ask" price for buy-to-close
  • Use the "bid" price for sell-to-open
As I mentioned last week I've decided to let ABBV be assigned because its beta is higher than I want to accept in my retirement portfolio. On Monday I'll use that $39,0000 to purchase 600 shares of MRK.

I wanted to hold on to EMR, KO, and MO so I did the following:

The EMR 60 was behaving strangely at 2:00. With the underlying at $60.27 the ask price had sat on $0.40 (it should have been something like $0.29) for some time while the other two were trading within a few cents of intrinsic as I would expect. But by 3:00 the ask came down to within $0.03 of the underlying as the others had.

Buy To Close 6 EMR May 60 @ $0.30
Commission: $13.45 ($8.95 + 6 * $0.75)
Cost: $180.00

Sell To Open 6 EMR June 60 @ $1.35
Commission: $13.45 ($8.95 + 6 * $0.75)
Premium: $810.00

Buy To Close 8 KO May 41 @ $0.54
Commission: $14.95 ($8.95 + 8 * $0.75)
Cost: $432.00

Sell To Open 8 KO June 41 @ $0.81
Commission: $14.95 ($8.95 + 8 * $0.75)
Premium: $648.00

Buy To Close 6 MO May 52.50 @ $0.25
Commission: $13.45 ($8.95 + 6 * $0.75)
Cost: $150.00

Sell To Open 6 Mo June 52.50 @ $1.04
Commission: $13.45 ($8.95 + 6 * $0.75)
Premium: $624.00

So, I spent $845.70 to make $2082.00 for a net gain of $1236.30 or a bit over 146% profit on the roll out.

Most trading systems let you to combine the buy/sell pairs into a single transaction that allows you to specify the net premium (or cost) you want to achieve. You still pay the same commissions but it makes things easier if you have a specific target you want to hit since the net price allows the specialist executing the trades to jigger the prices around. Since I'm paper trading I'm laying out both legs of the transaction separately.

The rest of the portfolio is doing pretty well. I ended up $4723 for the month with three positions underwater. F is the a weak link, but I'll continue to hang in there and collect the dividend ($150 in June) until I can write calls on it again.

COP and PG are both pretty far off my purchase price so on Monday I'll decide what to do about them. Chances are I'll just not write calls until they move up a little.

Actions for Monday:

Buy 600 shares of MRK
Buy 100 shares of GE
Write covered calls on MRK, VZ, ED, GE
See if there's any I can write on PG and COP
Shake my head in resignation at F

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