Financial Planning Weekend Update: September 28, 2015

Monday September 21

The HCP calls having expired worthless on Friday I wrote another set today, collecting $264.84 in premium. So far this month I've collected $828.24 in premium and dividends and another $238.95 in net profit on the F position that was assigned. At this point the MRK calls are in absolutely no danger of being assigned on Friday so that position will get another set of calls written on Monday. With MRK beaten down these last few weeks I'll probably use some of my cash to purchase another 100 shares sometime this week.

Tuesday September 22

Big time market pull back today so everything's out of the money. MRK's yield is drifting up and is over 3.6% so that's starting to look pretty tempting. We'll see what happens tomorrow. Patience!

Wednesday September 23

As planned I bought another 100 shares of MRK at $50.50 plus $8.95 commission for a cost basis of $50.5895. This lowers my overall cost basis by $0.98 and increases my annual dividend by $180.00. MRK went ex-dividend on the 11th so I won't see the dividend on this lot. My existing calls remain in no danger. Monday I'll write another set - 7 instead of 6 this time. The October 16 53.50 are bid at $0.40 this morning.

Thursday September 24

No activity in the IRA today.

Friday September 25

Biotech continues under pressure. As expected my MRK calls expired worthless. As funds become available I'll continue to pickup more MRK. ED remains in the money and that will bear watching as the next ex-dividend date in early November approaches.

Monday September 28

MRK has continued to fall along with the Pharma/Healthcare/Biotech sector as a whole. The last set of MRK calls having expired worthless on Friday, I wrote 7 Oct 16 $51.50 at $0.52 for a net income of $349.65. Somehow I managed to make that sale during a mid-morning price pop in MRK, so I'm pretty happy. As I write this the calls are $2.75 out of the money. I'll have to keep an eye on them, but given current conditions I don't think I have much to worry about.

This will be the last activity in the IRA for the month of September. Income for the month is shown below:

That's a pretty good month. About 1.37% in income based on the $104,000.00 original investment. Annualized that comes to 17.75%. Yep, pretty good.

From now on I'll only be posting financial planning updates if there's activity in the IRA. There will be other posts so stay tuned. As always, comments are welcome.

Financial Planning Weekend Update - September 19, 2015

Monday, September 14

As mentioned last week, the MRK 58.50 calls expired worthless so I had an open position Monday morning. Watching the open I saw that MRK was rising a bit in an overall market drop. Looking at option possibilities I settled on the September 25 53.50 contract and placed a limit order at $0.40. The order was filled almost immediately at $0.42 for net income of $238.40 after commissions and fees. Normally you want to see about 1% to 1.5% in monthly premium; this 2 week position represents about 0.7% so it's at the higher end of the "good to go" range.

Lesson Learned: Don't get over excited at the open. Give things an hour or so to settle down. The call sold for $0.53 a little later in the morning which would have gotten me another $66.00 in premium. Why does 66 bucks matter? That's $132 in a month. In the 10 position structure I have in mind, we're looking at $1320.00 a month! Almost $16000.00  a year!!

I don't want to be assigned (and lose $3.53 a share on the underlying) so I'll have to keep a close eye on this position since it's only about a buck out of the money. Fortunately the week of September 21-25 is"Popestock" here in Philly and I am going to be "working from home" for the week (along with pretty much everyone else able to do so). Unless the FOMC does something crazy like announce no interest rate increase until 2019 I think this position will expire worthless.

Tuesday, September 15

Today ED delivered $325.00 in dividend income to our account which was automatically re-invested in 5.1465 ED shares. All of our positions are set to re-invest dividends and will remain that way unless we need the income for some reason. When my 401(k) has been completely rolled over that should be about $1200.00 a month all told.

I expected the markets to basically trade sideways going into the FOMC meeting this week, but Tuesday closed up almost 1.5%. 

Wednesday, September 16

The FOMC meeting began and the market rally continued with a nearly 1% gain on light volume. The talking heads think this run is mostly short covering with the chance of an interest rate increase now at about 20%.

My F position is now deep in the money and I intend to let it be assigned and redeploy the funds, probably into HCP. That will lower my cost basis a bit and add another $226.00 per year to my dividend income. My 2 week MRK calls are also in the money but only by a few cents. 

Thursday, September 17

Initial unemployment claims fell to an 8 week low for the week ending September 12. The markets opened slightly negative and gradually rose into the FOMC's 2:00 announcement, turned negative at the "no change" news, popped green almost immediately and then drifted to a negative close. 

Friday, September 18 

The S&P dropped about 1.62%. Not surprisingly ED and HCP both rose slightly.

As planned I let my F position be exercised. Monday I'll probably use those funds for some more HCP. That will slightly lower my cost basis and add another $226.00 to my dividend income.

ED actually popped into the money. That position has another 2 months to go but the next ex-dividend date will be at the beginning of November so if it's still in the money I'll be looking to roll out again.

MRK remains depressed. Eventually the pharmaceuticals will rotate back into favor; meanwhile I'll continue to collect dividends (October 7) and write calls.

Financial Planning Weekend Update - September 11, 2015

A Friday night update!

It looks we're now in a new, lower trading range and everyone seems to be paralyzed ahead of next week's FOMC meeting and whatever their interest rate decision is. As you can see from the spreadsheet we're a little better off, but really, pretty much in the same place we were last week. My MRK calls were in absolutely no danger of being exercised today and at this point it looks like only F has a chance of being exercised on the 18th.

Next week is busy!

On Monday I'll be looking to write a new batch of calls on my MRK position. Fortunately, MRK has "weeklies" and volatility remains elevated. Given that my cost basis on MRK is $57.45 my current plan is to write one week calls about $1.00 - $1.50 or so out of the money and roll them up and out as necessary. With volatility as high as it is that's something like $180 - $200 income available each week. Of course I'll have to be careful to watch prices each Friday so I can roll out if necessary. MRK just went ex-dividend so I won't have to worry about early exercise (as I did with ED) until December. Speaking of ED...

On Tuesday ED will pay me my first dividend of $325.00. For now, all my positions have dividends set to re-invest (aka DRIP). So Wednesday morning I'll have an additional 5.23 or so shares of ED that will in turn add about $3.40 to each quarterly payment. Then in December I'll get about 5.28 shares and so forth. In about four and a half years that will result in more than 100 more shares which will in turn generate another $260.00 (or more) a year in dividend income and about $100.00 each month in option premium income (Oct. $62.50 calls are currently bid at $1.30!). If everything were to remain the same it looks like this:

It won't, of course, remain the same.  The price of the stock will vary, the dividend will increase over time (it was raised little over 3% last year) and I certainly hope that volatility will settle down (which will lower option premiums). But you get the idea.

Wednesday's fun continues with the two day FOMC  meeting and on Friday my HCP and F calls will expire. F is in the money right now and if it's exercised I'll see a profit of $0.62 a share or about 4.81%. However, if there's an opportunity to do so I'll roll up and out. With only 4 contracts to sell I'll be lucky to bring in $100.00 but anything that generates some income is worthwhile in the current market.

Financial Planning Weekend Update - September 8, 2015

Well that was an ugly week. Great Monday for my Buckeyes, and futures look positive this Tuesday morning. The next two weeks will finally see some action as my real money plan gets some exercise. This coming Friday, September 11, the MRK calls will expire and on Monday the 14th I'll write a new set. On the 15th, ED will pay me $325 in dividends, and on the 18th the ED and F calls expire. ED is in absolutely no danger of being in the money, but F is actually looking like it will hold above $13.50.

That's it for this week!