Monthly Returns - May 2009

Sunday, May 31, 2009

Returns -- Through May 2009

The month of May was quite interesting for both the market and the CCIP. It was the third month that the CCIP has been in existence, and was also the first month that the CCIP lagged its benchmark (SPY), though only by less than 1%. One would normally assume that during a period of relatively flat movement in the overall market, the CCIP would have performed well, because the general rationale of a covered call portfolio is that it will recieve income even when the market moves sideways. Unfortunately, due to the relatively late expiration of June calls, as well as the high volatility of the positions in the portfolio, this was not the case. Based on current market values, if all of the positions in the portfolio end in the money at expiration, the porfolio will increase another 5% in value.

The portfolio continues however to beat the market since its inception (by about 12%). The chart below presents the monthly performance of the CCIP for May, as well as the performance of the portfolio since inception.

Portfolio Results

The 2009 Since Inception results are as follows:

1. Since Inception Results

CCIP Absolute Return (March 7 through May 31, 2009) = 44.33%

Benchmark S&P 500 (SPY) Absolute Return (March 7 through April 30, 2009) = 32.34%

The CCIP has outperformed the S&P 500 benchmark by a total of 11.99%

June 2009 Next Steps

The current strategy for establishing calls in June for July expiration has yet to be determined. This is mostly due to the fact that there are still 3 weeks left until June expiration, and a lot can happen in the meantime. As GM is likely to file for bankruptcty tomorrow, it will be interesting to see how the market reacts, especially considering that in my opinion it has been pretty obvious for the past two months that it was going to happen. I think that it is most likely already priced into the market.

Earnings season is essentially over at this point, and so there aren't really any unforeseen news events on the horizon besides the normal US data, such as housing, GDP, retail sales etc. Although the North Korea situation could pose an issue to the markets short-term I believe its just the usual posturing, though I wont make this a political blog.

Positions in the CCIP may be rolled up and out depending on what happens in the next three weeks, but this will be noted on the blog. Additionally, I may add further cash-scured put positions with July expirations in order to maximize potential profit.

The strategy for establishing covered calls positions after June expiration will be as follows, and is similar to the rationale for establishing June calls earlier this month, based on the closing price of the S&P 500 on June expiration, June 19, 2009:

If S&P 500 is between 750 and 850, we have most likely recieved bad news on the economic front and aare moving towards retesting lows, and thus should establish calls 2.5-5% in the money

If S&P 500 is between 850 and 950, we have most likely solidified a new bottom, and should sell at the money calls between -2.5% and 2.5% away from current price

If S&P 500 is above 950, we have most likely had consistent good news and should sell out of the money calls at least 2.5% out of the money

Update Transaction - Tivo (TIVO)

After releasing earnings on May 27 which were better than expected, Tivo fell about 10%. Based on this fact, I chose to close out the call I had sold, purchase a protective put, and sell an out-of the-money LEAP call in order to finance the purchase of the put. The reason I chose to do this was two-fold. An out-of-the-money LEAP call will not move very much with movements in the stock, which allows the stock to appreciate while also allowing me to buy back the call and sell a closer expiration call without paying to much of a premium. Additionally, after finally becoming profitable Tivo has now reverted back to negative earnings and as such I do want to protect my downside further, while still allowing for a rebound in the economy to send the stock higher. The purchase info is below:

4/19/2009 -- Bought 100 TIVO @ 7.48
4/19/2009 -- Sold To Open 1 TIVO June $7.50 Call @ .63
5/28/2009 -- Bought To Close 1 TIVO June $7.50 Call @ .25
5/28/2009 -- Sold To Open 1 TIVO Nov $10 Call @ .35
5/28/2009 -- Bought To Open 1 TIVO June $5 Put @ .2


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $748.00

Maximum Downside Risk: 39%
Downside Coverage From Current Price: None
Possible Max Upside: 43.17%

Annualized Max Upside: 84.71%

Initial Transaction - General Electric (GE)

I opened another cash-secured put position in GE today, as a result of its quite sharp decrease in price over the past few days. I believe that it is being dragged down with the financials yet again, unfairly in my opinion. The stock has decreased 19% from 14.53 on May 9 to 11.75 today. I was able to sell an $11 put for a pretty good price which would set my cost basis at about $10.60, a price not seen since the beginning of April. Additionally, the stock yields about 3.8% at this price which is pretty good. This also complements my July $12 CSP which would give me two entry points. The performance metrics are below:

5/27/2009 -- Sold To Open 1 GE June $11 Put @ 0.45

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Put Sale Profit: $45.00


Downward Movement Required (Put Sold When GE@11.75): 6.8%
Possible Max Upside: 4.09%

Annualized Max Upside: 49.77%

Initial Transaction - CSX Corporation (CSX)

Continuing with my recent shift toward collared positions, I began another today in CSX Corporation one of the nation's largest rail transportation companies. This position was started due to a few factors. Firstly, rail shipping will be one of the areas which rebounds once the economy rebounds, and as such this position is more of a long term play, though I wouldnt be disappointed if it got called away. I chose CSX as opposed to one of the other rail companies due to its high relative revenue growth, and the fact that it has lagged its peers in terms of a bounce off the bottom, trading between 25 and 30 for about a month and a half. The new purchase metrics are below:

5/27/2009 -- Bought 100 CSX @ 29.715
5/27/2009 -- Sold To Open 1 CSX June $30 Call @ 1.28
5/27/2009 -- Bought To Open 1 CSX June $26 Put @ 0.45



The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2971.50


Max Downside Risk: 9.99%
Downside Coverage: 2.79%
Possible Max Upside: 3.86%

Annualized Max Upside: 58.71%

Update Transaction - Continental Airlines (CAL)

After a 19% drop in Continenal Airlines since the June call was sold, I decided to buy back the call and hope for a rebound in CAL in order to sell the same call again for a higher price. Unfortunately, recent higher oil prices are great for the oil stocks but tend to wreak havoc on the airline stocks. I plan to attempt to resell the call if it reaches about $0.60, if not I may have to sell a July call. The new profit/loss projections are below:

4/14/2009 -- Bought 100 CAL @ 12.225
4/17/2009 -- Sold To Open 1 CAL May $11 Call @ 2.17

5/15/2009 – May $11 Call Expired

5/18/2009 – Sold To Open 1 CAL June $11 Call @ 1.05
5/27/2009 -- Bought To Close 1 CAL June $11 Call @ 0.3

The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $1222.50


Downside Coverage From Current Price (9.00): None
Possible Max Upside: Unlimited

Annualized Max Upside: N/A

Update Transaction - Bristol-Myers Squibb (BMY)

Due to about a 10% decrease in the share price of BMY since the June call was sold, the call was bought back today. This continues my strategy for BMY which has traded between about $19 and $21 for the past few months. I continue to sell $21 calls when BMY nears $21, and buy them back when it nears $19. This allows me the possibility to reap even more income out of BMY, while receiving a hefty dividend.

4/6/2009 -- Bought 100 BMY @ 20.48
4/6/2009 -- Sold To Open 1 BMY April $21 Call @ .34
4/17/2009 -- Covered Call Expired
4/20/2009 -- Sold To Open 1 BMY May $21 Call @ .65
4/29/2009 -- Bought To Close 1 BMY May $21 Call @ .11
5/12/2009 -- Sold To Open 1 BMY June $21 Call @ .55
5/27/2009 -- Bought To Close 1 BMY June $21 Call @ .18


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Stock Purchase Cost: $2048.00


Downside Coverage (from current price of $19.50): 1.4%
Possible Max Upside: Unlimited

Annualized Max Upside: N/A

Initial Transaction - Hewlett-Packard (HPQ)

The first cash-secured put position in the CCIP was established today. This new strategy is being used in an effort to diversify the income streams in the CCIP. This particular position in HP has been established based on a few factors. After the acquisition of EDS, HP has positioned itself as a growing leader in the space of IT consulting services. In my opinion it is on its way to becoming a company on par with IBM in terms of its ability to combine hardware sales with IT services. The stock was hit recently due to a somewhat negative forecast, but I would tend to think that the company is following in Apple's footsteps by simply attempting to be more conservative when it comes to outlook. In both investing, and the consulting work that I do, I tend to believe it is better to underpromise and over deliver, than promise more than you think you can do, simply to get a short-term bounce in share price, or new business in the case of consulting. Hopefully, this position will be the first of many profitable cash-secured put positions. The performance metrics are below:

5/27/2009 -- Sold To Open 1 HPQ June $35 Put @ 1.20


The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Put Sale Profit: $120.00


Downside Coverage (Put Sold When HP@34.75): 3.45%
Possible Max Upside: 3.43%

Annualized Max Upside: 52.14%