Financial Planning Wekend Update: December 12, 2015

Monday December 7, 2015

Nothing happened in the account last week, hence the two week gap.

I opened a new position in Altria (MO) with the following Buy/Write:

Commission and fees came to $13.61 so I have a cost basis of $57.7226. There are only two weeks left in the calls and I expect to be able to write at least twice a month against this underlying. At this point I have approximately half of my retirement funds in this IRA and the rest will stay in my 401(k) until retirement.

The market gave up a good chunk of Friday's gains so volatility is jacking up option premiums. It's looking like I will have to roll out my MRK position on Thursday but that should be the only other activity this week.

Tuesday December 8, 2015

The S&P closed down another 10 points. Maybe I won't have to roll MRK.

Wednesday December 9, 2015

Altria (MO)  declared the expected $0.565 dividend payable January 11 to shareholders of record December 24. My current position expires on the 18th so I'll be writing new calls on the 18th if I have to roll out or the 21st if they expire so I probably won't have to worry about early assignment due to the dividend as there will be plenty of time left in the contract.

Thursday December 10, 2015

I rolled out my MRK position to the February $52.50 for a net credit of $764.16. The full story of this roll out was posted as Avoiding Early Exercise of Covered Calls over at Seeking Alpha.

Friday December 11, 2015

That wraps up a nasty week in the markets with a nearly 2% drop in the S&P 500. Most of my positions expire next week and the best that can be said at least they're out of the money. As of today they look like this:

Only HCP is in the money but with the Fed Reality Day set for Wednesday I will not be at all surprised to see it drift under my strike.

Next week should be interesting and I hope not too painful. Friday is a "triple witching" expiration so there could be some additional volatility at roll out time.

An Answer to "Retire Where?"

Chris DeMuth Jr. recent published an article in Seeking Alpha titled “RetireWhere?” in which he suggested three fairly typical locations for retirement: Wyoming, Puerto Rico, and Dominica. He justified those choices largely in economic terms. Unfortunately he completely ignores the vast array of "soft" quality of life factors as well as a number of very real issues that older persons, retired or not, must must deal with.

East Passyunk, Philadelphia, PA

What? Inner city Philadelphia? You bet. We’re fairly young (about to be) retirees.  East Passyunk and the Passyunk Square area are the closest things this side of Paris to pure bliss for us. Why? Let me enumerate the ways:

Walkability

Living in a city comes with absolutely free walkability. There’s no need to own a car, pay for gas, insurance, maintenance, and so forth. This alone is an enormous financial advantage. If a place is too far to walk, Philadelphia has a very good public transit system. In the rare instance we happen to need larger or more flexible transport we can use ZipCar or a similar service.

Dining

We’re both avid “foodies” and East Passyunk is a nationally recognized hotbed of high quality eats. Some of our favorites in the area include Le Virtu and Brigantessa, Laurel, P’unk Burger, and Stargazy a recently opened authentic English pie shop (complete with eels). Bing Bin Dim Sum is a high concept “dim sum” joint serving innovative dishes you’ll never see in an actual Chinese restaurant. You can read more about the area restaurants in this recent article: http://www.philly.com/philly/neighborhoods/east-passyunk?&betaPreview=redesign

If we’re willing to walk a little further we come to Philadelphia’s Italian Market and the really wonderful Monzu cooking up great Sicilian style food. A few blocks away is Pho 75, a great Vietnamese joint. A short bus ride brings us east to City Tavern, Zahav, the original Han Dynasty location, Morimoto’s first restaurant, and many more.

We can take the Broad Street Line a couple stops north for Vetri, Jose Garces’ Volver and many more. Two more stops north and we’re in Chinatown. Another stop brings us to Spring Garden and the excellent restaurants in that area including  Osteria, Alla Spina, and many more.

And heck, let’s not forget Pat’s and Geno’s, the great Cheese Steak emporiums facing each other across E. Passyunk Ave.  I’m pretty sure you can’t get a real cheese steak in Puerto Rico.

The Arts

At this point it should come as no surprise that we also happen to enjoy the arts. Nearly everyone has heard of the Philadelphia Museum of Art (if only from Rocky). Then there’s the Rodin Museum, The Barnes Foundation, The University of Pennsylvania Museum of Archaeology and Anthropology are the most well known. On Bloomsday (or any other day) we can wander over to the Rosenbach Museum and Library to O.D. on everything Joyce. All are a short bus or subway ride from East Passyunk.

What’s that? You’re interested in music? Well, there’s the Kimmel Center, home of the Philadelphia Orchestra, The Curtis Institute, The Wilma Theater. and The Academy of Music all within about 3 blocks on Broad Street. Over on Chestnut there’s the Prince Music Theater and on Walnut Forrest Theater and Walnut Street Theater, the oldest playhouse in America. For those interested in something louder, The Trocadero and the Electric Factory present wildly varied acts.  And those are just the big names!

Movies? Yes, we have movie theaters here in Philadelphia. We like to go to the Cinemark theaters near the Penn campus because there are also a bunch of good restaurants in the area including another Han Dynasty. 

Travel

Philadelphia is located in the middle of Amtrak’s Northeast Corridor so we have frequent and reasonably fast train access to Washington DC, Baltimore, New York, Providence and Boston. We can take a SEPTA train to PHL for direct flights to places we like to visit like Paris, Rome, and Las Vegas.

If you live in Wyoming and want to visit Paris, well, first you have to drive to CPR, then fly to DEN, then to a real airport like ORD, EWR, or IAD and finally to CDG – 16+ grueling hours. Me? I can hop the train to PHL for the 7h 25m flight to CDG.

Shopping

For groceries we’ve got Chinatown, Reading Terminal Market, Italian Market, several chain grocery stores, and a number of seasonal farmer’s markets within walking distance or a short transit ride. Then there are the specialty shops like Czerw’s for all kinds of Polish sausages, several traditional bakers, local cheese makers and so forth. Craft Beer? We got it all over the place. And we also happen to have Philadelphia Distilling, makers of Bluecoat Gin, arguably the best made in the US. (Plus you get a $3 credit when you bring back your empty bottle.)

Of course we’re living in a major city, so we’ve got department stores like Macy’s and all the national chains. Wherever we happen to shop we’ll be a few steps from great dining.

Health Care

Philadelphia is a regional hub for health care. We’ve got the University of Pennsylvania medical complex, Thomas Jefferson University Hospital, Hahnemann University Hospital, Temple University Hospital… all minutes away. In Dominica you’ll have to make your way to Princess Margaret Hospital in Goodwill, Roseau at the south west side of the island.

OK. So what’s It Cost?

The houses we’re looking at are in the area of 1,100-1,300 sq. feet with prices for a fully renovated home in the $250,000 to $300,000 range. Many have roof decks with great views of the city skyline. We’ll have about $100,000 in equity from our current house (in the first ring suburb made famous by Kobe Bryant) so we’ll be financing a relatively small amount. We expect to have monthly PITI payments in the $1300-$1500 range. This number isn’t random; if we have no other income than our two social security checks and small annuity Mrs. C. is vested in, we’ll still be able to live comfortably (though international travel will require considerable planning).

As for utilities mid-block row houses are extremely inexpensive to operate with combined gas and electric bills in the $125/month range (less than half what we’re paying now) and water/sewer about $40.

Maintenance consists principally of keeping an eye on your roof every 20 years and occasionally shoveling a little snow off your 15 feet of sidewalk. East Passyunk has several very active civic associations that sponsor recycling clean outs, home tours, community gardens, zoning hearings and so forth.

Where does Pennsylvania actually end up on the retiree tax chart? Quite high. According to this infographic from Kiplinger's Pennsylvania is number 11 on the list of "15 Most Tax Friendly States For Retirees":

My Conclusion

There’s simply no way we could even consider living someplace like Wyoming. Puerto Rico and Dominica are probably great places to visit, but live there? Not a chance. We want to have all the cultural offerings of a major city steps from our front door, friendly neighbors who are active in the community, and easy access to the rest of the world. If (when) we become ill, we want to get to the hospital quickly and get world-class care once we arrive.  

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.

Financial Planning: Option Update

Friday I rolled out my MRK calls because there was a very real possibility of them being exercised. As it happened I was able to roll out 3 weeks and raise the strike to $52.50. That's still below my cost basis but that just means I have to be alert when November 6 rolls around.

The HCP calls expired worthless so this morning I was very pleased to see a little pop in its price. I got my order in and sold the 8 calls for $0.39:

After commission and fees that paid me $296.84. Unless something weird happens this will be the last activity in the account for October. For the month my income looks like this:

Not as good as last month but not to be sneezed at. MRK is still the main drag on net asset value but we'll just keep writing calls and collecting dividends as it works its way back.

November is looking to be a fun month. The MRK calls expire on the 6th so there's a good possibility I'll be able to write at least twice on that position. Right about then ED will be going ex-dividend for December so that will bear watching to avoid early exercise if ED is still in the money. My HCP and, I hope ED, calls expire on the 20th and about a week later HCP will pay its dividend of $452.00.

Edit: After the close the ED calls now have only $0.40 worth of time value. Now I just need ED to declare their dividend so I know when to roll out.

Edit 2: November 22; ED declares $0.65 dividend payable Dec. 15; for shareholders of record Nov. 18; ex-div Nov. 16. So that means that Friday November 13 is roll out day. 

Looking Out For A Roll Out

Well, it's expiration day again and I have one position, 7 MRK $51.50 calls, that's in danger of being in the money. This post is going to illustrate what happens during the day to call that's very close to "in the money".

Here's the situation about ten minutes after the open:

MRK at $51.49

$0.00 intrinsic value but someone thinks there's $0.22 worth of time value left in it (all time value estimates here are based on the "ask" price). Ten minutes later the $51.50 is in the money:

MRK at $51.55

That call has $0.05 of intrinsic value and now $0.17 worth of time value. One hour into the day (10:30 AM):

MRK at $51.27

After reaching a high of $51.72 MRK has drifted down and the call is now out of the money. Just  $0.10 in time value remains. All three major indices are just barely positive. After yesterday's big gains I could actually use a dip to pick up some volatility and increase options premiums for Monday.

11:30 AM:

MRK at $51.40

Out of the money by a a dime now but there's still $0.13 of time value. And there's been a good bit of trading too, with 1,213 contracts changing hands.

12:45 PM:

MRK at $51.30

With the underlying now $0.20 out of the money time value has evaporated. Only a dozen contracts were traded in the last hour.

1:30 PM:

MRK at $51.22

A few more contracts traded, a little more time value evaporates. The fact that there is still a bid suggests that someone thinks there's a small chance MRK will rise to close higher than $51.52.
If the market is going to rise into the close it should start moving in the next hour or so.

2:30 PM:

MRK at $51.33

With 90 minutes to go in the trading day there's no longer a bid for the $51.50, though another 10 contracts did trade in the last hour. The major indices have been essentially flat lined for quite a while now so I'm pretty confident I won't be needing to roll out today.

2:44 PM:

MRK at $51.44

And this is why we watch into the close. The market finally started to move up a little (the S&P 500 is up 0.28%) bringing MRK along with it.

3:30 PM:

MRK at $51.48

Looks like this one's coming down to the wire! If MRK is this close to the money at 3:45 I'll roll out. It takes some time to execute a trade and I want to be sure to keep my MRK.

3:48 PM

And there we have it. I rolled out 3 weeks and up a dollar for a net premium, including commission and fees of $386.20. I'm really happy with Schwab's service this afternoon; the order filled almost instantly.

As it turns out MRK closed at $51.48 so I didn't really have to roll out; but there was no way to know that at 3:45. And best of all, even though MRK is still $4.99 below my cost basis, the whole portfolio is now green by a whopping 0.12%

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!

Financial Planning Weekend Update - August 29, 2015

Well! That was quite a week. And everything turned out pretty well for my portfolio.  ED weathered the threat of higher interest rates pretty well, HCP a little less well. MRK got caught in the biotech meltdown and although it recovered some of its losses it's still in the red. My nibble at F seems to be working out, so there's that. I still have about $1200 in cash. All in all the portfolio stands as follows:

In other Financial planning news, I increased my 401(k) contributions to include "catch-up" money and increased my monthly contribution to my Roth IRA so it will be maxed out by the end of the year. At this point I'm just a little less than 9 months from retirement so I want to get all the tax advantage accounts plumped up as much as possible.

Later this week I'll have a post about emergency room visits, medical costs and what catastrophe it would have been without insurance.

Rollover IRA Purchase: 400 F @ $12.88

Yesterday afternoon I decided to take a nibble of Ford while options premiums were inflated due to the volatility spike. As with earlier purchases F is intended to be a permanent part of my portfolio. This purchase represents about 20% of a full position.

After yesterday's wild ride all of my option positions are safely out of the money though this morning's futures indicate that might not be the case for long.

Financial Planning Weekend Update - August 23, 2015

That was something eh? The correction arrived in force on Thursday and Friday and the S&P 500 slammed right through every recent support level bounced a little and then crashed through 2000 on the way to 1970. But you know what? Even with the horrible performance of the market as a whole during this little experiment here's where the model portfolio has ended up:

Yep. Down 0.84% and sitting on more than $25K in cash. When I shifted into this model on April 20, the S&P 500 closed at 2100. That's a drop of roughly 130 points or about 6.2%. So at least I "beat the market". And you know what? If this were real money and Beth asked how we were doing, I'd have to say "darn good!". And remember - every one of those companies is still pumping out dividends ($1186 for September) and I'd be writing a fresh batch of calls including a roll out of ED.

And that's it for the model portfolio!

From now on we'll be looking at the real positions I have in my Rollover IRA:

Equity Positions

As of today the IRA holds the three positions shown above along with a small amount of cash.

The options look like this right as of Friday. MRK has obviously taken the brunt of the correction. Not surprisingly ED has held up very well, as utilities usually do in situations like the one we're in. HCP is also holding up nicely. I suspect that's principally because people now see a Federal Reserve interest rate increase in September as increasingly unlikely.

Finally, the current value of the IRA is up fractionally. If only I'd waited another week to make my move! I'd have even lower underlying prices and could have sold much more expensive calls due to the increase in volatility.

Rollover IRA Purchase: 800 HCP @ $39.25

This trade wraps up my current activity in the Rollover IRA. As with ED and MRK, I used a Buy/Write to create a conservative entry point.

I've invested the money I transferred from my 401(k) as fully as I intend to, though there's still a  small cash position of about 5.9%. From now until I actually retire all have to do is monitor the calls to prevent any position from being assigned prematurely.

Financial Planning Weekend Update - August 15, 2015

Yet another weak week. Even so, the portfolio is actually up an annualized 2.64%, so it's not as bad as it looks on the spreadsheet. And of course regardless of the unrealized capital losses the portfolio is still bringing in an average of more than $4,000 a month in dividends and option premiums:

As I mentioned last week, this model portfolio has just another week to live at which time it will be replaced with my live, real money portfolio:

For this first month I'm using Buy/Writes to establish each position so I'm not breaking out the individual option premiums since they're reflected in my cost basis. For now I have a placeholder for VTR. I decided to wait until Tuesday to see how the spin off goes and what the new dividend will be. I'm also considering HCP for that spot in the portfolio.

As always comments and questions are welcome.

Rollover IRA Roll Out: Avoiding Early Exercise

Probably the #1 reason that covered calls are exercised early is to capture a dividend. This happens when an equity nears its ex-dividend date and the time value of an in the money call is less than the value of the dividend. This week my position in ED/Sept 18 65 Call was in just that situation.

Using the "Ask" price we have:

With a $0.65 dividend coming up and only $0.53 worth of time value you can be pretty sure that these options are going to be exercised. So what can I do?

The obvious answer is "buy to close". That would have cost $1,100.00 (plus commission). And we'd end up like this:

That's not too bad. We end up with a theoretical $110 gain, collect the dividend September 15 and all is well, right? Well, maybe not. On the ex-dividend date we can expect the equity to trade lower by the amount of the dividend. In our case that's 500 shares times $0.65 for $325.00. I do want to keep the stock in my account so let's look at another possibility: Roll Out.

Thursday I executed the order you see above. I simultaneously bought the 9/18 65 to close and sold the 11/20 65 to open for a net $0.75 credit or $375.00 (less $16.74 in commissions) and preserved my September 15 dividend of $325.00. The ex-dividend date for the December dividend will be the sometime about the first week of November so I'll need to keep an eye on this position when November rolls around.