Options Expiration Update: November 23, 2105

Well, this last week has been interesting. Following the Friday night nastiness in Paris, the US markets popped big time on Monday. Tuesday was effectively flat, then Wednesday things swung positive again as the markets seemed to accept and digest the likelihood of a December liftoff by the FOMC. Thursday was flat again, though all of my positions rose slightly with HCP the best performer at 1.55%.

Friday the market took off again, rallying another 1%. Even so, all my November 20 calls expired worthless. I'll still have to keep an eye on the MRK December 18 position when Merck's ex-dividend date rolls around since it's still in the money.

Today I executed the following transactions:

I now have all my positions synchronized to the December 18 expiration. The FOMC meets the 15th and 16th so if they do raise interest rates, that will happen before expiration. Although everyone knows the increase is coming I still expect a knee-jerk reaction that should knock HCP and ED down a little. If they're out of the money, that will be a positive for me since I won't have to roll out.

Tomorrow HCP pays its dividend and we should also see MRK announce their January dividend before the Thanksgiving holiday. None of these three companies will have ex-dividend dates in December so I won't have to think much about the positions until the 18th. With that in mind, income for the month of November looks like this:

20.17% annualized - I think that's pretty good considering that last week the markets as a whole were up quite a bit with the consequence of reducing volatility and options premiums.

ETA 11/24: Merck declares $0.46 dividend payable to shareholders of record 12/15. That makes the ex date 12/11 so I'll have to roll out 12/10 if the MRK position has less time value than $0.46.

Financial Planning Weekend Update: November 14, 2015

 Monday, November 9

Although the market as a whole survived the big beat jobs number on Friday (except of course for interest rate sensitive issues like ED and HCP) it sold off about 1% today. Utilities like ED seem to have stabilized but REITs continued to get hammered, HCP to the tune of another 2.68%. Everything except MRK is now way out of the money and it wouldn't surprise me to see that position slip a bit more.

Tuesday, November 10

Nothing much happened today.

Wednesday, November 11

Well now! Thomson Reuters (TRI) is "exploring strategic options for the future of our IP & Science business unit." I happen to work for IP & Science. "Exploring strategic options" is MBA talk for "you're going to be sold".

As an investor I've kept a close eye on this sort of thing when it pops up in companies I'm interested in. So I'm pretty sure it will be at least a couple months until anything of substance happens, more months after that until the transaction(s) actually take place, and still more time will pass before anything that directly effects me will happen.

But... The part of IP&S I actually work for represents only about 2% of overall sales so we could be a target if TRI decides to lighten ship to make IP&S more attractive to buyers.

My prediction: In mid-Q1 '16 we'll hear about the sale in some detail. In 2015 the share holder's meeting was held on May 6 so I'll go out on a limb and suggest the board will ask for shareholder approval at the annual meeting about the first week in May 2016. After approval it will take a few more months for the deal to be completed.

Whatever happens, the market seems to like the news; TRI closed up almost 2% on a down day.

Thursday, November 12

Red ink everywhere today with indices down 1% or more. TRI has given up nearly all yesterday's gains, down better than 2%. For some reason HCP closed up a couple cents.

Friday, November 13

More red ink at the open and it looks like another major downer. My positions were holding up pretty well at 10:00 but fell with the market again. It's not fun to watch value bleed away, but this portfolio is meant to provide income from dividends and covered calls. But... as the market drops, volatility increases and that increases my income when I write the calls.

Should Have Waited A Few Hours

I bought another 100 shares of VZ at $44.80 (plus $8.95 commission). This lowers my cost basis by $0.21 and increases my annual income $226.00. With expiration a week away it also gives me another contract to write on a stock that has weekly options for more flexible "writes".

All in all a crappy week. in the middle of a crappy month (so far). Even so, I expect to see total income from options and dividends of nearly $2,000.00. We'll see how close when I write new contracts on the 23rd.

There's nothing happening next week until Friday's expiration. Everything except MRK is well out of the money so I don't expect to have to roll anything out. Thanksgiving week HCP will pay its dividend on the 24th and MRK should declare it's January dividend about the same time. MRK's ex-dividend date will be in early December so if that position is still in the money it may need to be rolled out.

Why Cheaper Gas Doesn't Move the Needle

There's been a lot of chatter in the financial entertainment industry about the boost that lower gasoline prices should give to consumer spending. I decided to take a look at my records for the last 3 years to see if we've seen any benefit.

Both of us have worked for the same companies during the period in question and there have been no other lifestyle changes. Most of our driving is in town. That chart up there  shows our quarterly gasoline purchases for the last 3 years. The big dips in Q1 2013 and 2015 cover periods when we took lengthy vacations.

Here are the numbers behind the chart:

So what do we have? Q3 2012 was our most expensive quarter; we spent $385.85 on gasoline and Q3 2015 was our cheapest non-vacation quarter at $250.82 a savings of $135.03 for the quarter or about $45.00 per month.

That's nice, but in the overall scheme of things in our household that represents about 1.28% of our monthly budgeted expenditures (about $3498 monthly). But let's take a look at inflation:

http://www.usinflationcalculator.com/

2.1%, 1.5%, 1.6% and what looks to be close to zero for 2015. What looks like $45 a month savings over 3 years has had it's buying power gobbled up by inflation in each year except 2015.

So pundits heads up!  Here's one family that hasn't seen any real benefit from lower gas prices.

Financial Planning Weekend Update: November 6, 2015

Monday November 2, 2015

Last week I transferred another chunk of money from my 401(k) to the Rollover IRA. Today I used those funds to establish a position in Verizon (VZ) by executing the following buy/write:

Including commission and fees my cost basis in VZ is actually $46.56. This position adds $1,582.00 to my annual dividend income which now totals $5,973.04 for a yield on cost of 4.45%.

This morning ED is coming in a little and the time value in my Nov. 20 $65 calls is $0.83, exceeding the ED dividend of $0.65. So for now anyway those are not in danger of early exercise. ED's ex-dividend is Nov. 16, so I'll have to keep a close eye on those calls on Nov. 13 if they're still in the money.

My MRK calls expire Friday and are still deeply in the money so those will almost certainly need rolling out Friday afternoon.

Tuesday November 3, 2015

HCP reported a good quarter: a 2 cent earnings beat with revenue up 10.3% year over year. The troublesome HCR Manorcare properties are almost gone with 12 sold and the remaining 38 under contract. That doesn't seem to be good enough however; the stock closed down almost a dollar at $36.73. The stock is ex-dividend on Thursday so I may buy another block tomorrow to lower my cost basis a little and capture the dividend.

ED has come in a bit more and spent most of the day out of the money but closed up fractionally at $65.54

As of tonight only the MRK position is deep in the money: $2.61.  That's almost certainly going to get rolled out Friday afternoon. I'd like to roll up as well but with so much intrinsic value in the $52.50 there isn't much time value in the next higher strikes. The weeklies only run to December 11 so I'll probably end up with the Dec 18 $52.50 and knock another 40 cents or so off my cost basis. The next ex-date will be in the first two weeks of December so I'll need to watch that carefully.

Wednesday November 4, 2015

Except for the continuing decline in HCP nothing much happened today. I did take a shot at HCP for $35 which was not filled.


Thursday November 5, 2015

HCP didn't hit my bid yesterday and of course since it's now trading ex-dividend the price has dropped after the close by about the dividend amount plus a little more this morning. At least the calls are in no danger. VZ and MRK are ticking up a little and ED is flat.

Friday November 6, 2015

Big beat on the jobs report which likely means the FOMC will finally boost the discount rate by 25 bps in December. It's about damn time.

Not surprisingly, everything is down big time. The positive for that is all but my MRK position are out of the money and I rolled that out rather successfully:

Ordinarily I would have waited until 3:30 or so to roll out, but with volatility high early I decided to take my shot. The trade nets out to $414.16 after commission and fees. Extra thanks go to Schwab's options desk who got my fill almost instantly and $0.12 higher than my credit limit. I will have to keep an eye on the position in a few weeks because MRK's ex-dividend date will be coming up around December 11 or so. At this point I've collected $3.07 per share on my original 600 share purchase and $1.70 on the 100 shares I bought more recently reducing my overall cost basis to $53.59.

Unless ED pops back into the money by the 13th there will be no more activity in the IRA until Monday the 23rd when I'll write a new batch of calls on the three remaining positions. HCP will be paying a dividend on the 24th which will now buy proportionally more shares as it re-invests.