I try to be as transparent as I can with my moves for my portfolio in order to let my readers know exactly what my reason for any investment was. Plus it allows me to go back to analyze the reasons for any transaction and determine if it's time to sell. Yesterday morning I purchased 18 shares of Air Products and Chemicals (APD) for $85.21 per share and today I closed out the $41 call on Halliburton and the $27 put on Microsoft.
My total per share cost basis on will be $85.65 after including commission which is about 5.4% over my target entry price but still below the average valuation price by about 10%. It's definitely not the cheapest that it could be found for, but I think it represents decent value in a market that's been on fire. If you believe that the economy will continue to improve then APD is a great way to play the industrials coming back.
Unfortunately I'll miss the next dividend payment in May since it went ex-div last week. I'm in it for the long haul so I'm not too worried about that. This position will carry 3.32% YOC based on the current quarterly dividend of $0.71 and will add an extra $51.12 in annual dividends before any future increases or reinvestment increasing my forward 12-month dividends to $2,230.03. Another reason I made this purchase besides it being slightly undervalued is that it will give some diversification to my dividend payments. Most of my positions pay out on the March, June, September, December schedule but APD typically pays out during February, May, August, November.
I made a smaller than normal purchase because I think the market might be getting a little toppy and could hopefully bring us a bit of a retreat to let us all make some more purchases. If not maybe the "sell in May and go away" will show up again this year, of course I'll be buying as they're selling. I'll look for a chance to average down my costs basis should the opportunity present itself.
Now to the options trades.
Option Trade 1: I had originally sold the HAL call back in early February with the intent to have the shares called away. I'm not sure if that's going to happen so I took the opportunity to close out the call for a nice profit and will be looking for a chance to sell another call shortly since more shares will be hitting my account later this month.
I bought to close the call option for a price of $1.46 which after commission and fees cost me a total of $153.98. Since I received $268.25 when I sold the call option this netted me a profit of $114.27 which ended up being a 2.79% return annualized to a 17.54% rate for the time the call was open. I ended up collecting 42.6% of the premium in 34.9% of the days if it would have gone until expiration. Overall, closing out the trade gave me a annualized return greater than if it went to expiration. Since HAL shares have been showing some weakness and I'm not sure if they would have been called away at the $41 level it was a good opportunity to take some profit and look to sell another call possibly with a lower strike price.
Option Trade 2: I also bought to close the put option on MSFT that I had originally sold in late February with a $27 strike. MSFT has risen with the market thus lowering the price of the the option so I went ahead and closed it early so I can keep more cash on hand in case we get a pull back in the market. This put option was sold as cash secured so I had to keep the full $2,700 to cover the put option.
I bought to close the put option for a price of $0.06 which after commission and fees cost me a total of $13.98. I had already received $50.01 when I sold the put option, so this netted me a total of $36.03 as profit. This ended up being a 1.33% return which is annualized to a 13.16% rate over the time the position was open. If it would have gone to expiration and then expired it would have been a 12.52% annualized return which still would have been nice. I ended up capturing 72% of the premium in 68.5% of the days so it wasn't the greatest example of making a quicker profit but it was still a profit.
As mentioned before this was a cash secured put and with 4 open put options sold on margin I wanted to free up some more cash. I don't expect 2 of the puts to get executed but you never know what Mr. Market will do. I'll be looking to redeploy the freed up $2,700 either through another put option on margin or through an outright purchase. The markets seem to have slowed a bit so far and with earnings season starting next week there's always a chance for big swings.
So far in 2013 I've received $334.59 in profit from options.
I've updated my Portfolio and Option pages to reflect these changes.
What do you have your eye on or what have you purchased? Are you trying to build up more cash in case the markets retreat from here?