Thursday, August 8, 2013

Recent Portfolio Moves

I made 2 moves to my portfolio today as well as two moves to report from last week so I've got a bit of a backlog of transactions.  Even though I've slacked a bit on getting the announcements up, it's mainly been from lack of free time and I wasn't as rushed because none of these moves effected my dividend growth strategy.  As I've mentioned, my wife and I are in the process of purchasing a house and I needed to get the last bit of down-payment settled.  What better way than the use the shares purchased at a discount through the employee stock purchase plan at work?

On August 1st, I sold off 100 shares of HAL for $46.11 each.  After commission and fees I received a total of $4,602.96 in proceeds from the sale.  These shares carried a cost basis of $2,413 so it was almost a smooth double in about 1.5 years.  Not bad if I do say so myself, although I did receive the 15% discount on the purchase.  The taxation on shares purchased through an ESPP program is way over-complicated, but it's what we have to work with for now.  These shares ended up being a disqualifying disposition but did end up being long-term capital gains.  I'll have to report the discount of $425.85 from the purchase as ordinary income and $1,763.96 as capital gains.  These values are actually the same as if I had waited long enough for this to be a qualifying disposition, so there was no "penalty" by selling early.

Today I sold 50 more shares of HAL, this time for $46.26 each.  After commission and fees I received a total of $2,305.02 in proceeds from this sale.  The shares actually came from 3 different lots, but the blended cost basis was $1,512.83.  So this was good for a $1,000 gain or around a 52% gain including the 15% discount.  All three lots were disqualifying dispositions with 2 being short term capital gains and 1 being long term.  In total, I'll have to report $502.33 of the gain as ordinary income when I file my taxes and $289.68 as capital gains.

I don't think I've been as efficient as I could have with the taxes but I needed to lock in the gains to finish off building up the fund for the down-payment and other fees for the home purchase.  Having flexibility in your timing can make a big difference with any sales.  I now have all the cash needed although it's spread out over 4 different accounts so I'll be working on getting everything to one account.  I'll be glad to get to September when I can start contributing back to my cash reserves and start making some purchases again for the FI Portfolio.  For more information on the taxation of ESPP shares check out this post and the accompanying spreadsheet.

The other 2 moves were both call option changes on shares of HAL.

On August 6th, I bought to close the $41 call option I had sold on HAL back in April that would have expired in October.  I had to pay $515.00 plus the $8.73 in commission and fees to close out this trade.  All in all this was a$302.47 loss.  Good Bad for a -7.38% return for a -26.95% annualized rate.  Ouch!  This put a dent in my option income so far this year.  But I'll explain later why I felt this was the right move to make.

Today I sold to open a $47 call option on HAL that expires later this month.  In exchange for selling the option I received $23 in option premium less commission and fees netting me a total premium income of $15.01.  Not exactly the best way to get some of that option premium back.

This trade can work out one of three ways:

(1) If HAL is trading below $47 on August 17th, I'll get to keep the full option premium as profit.  This would be a 0.32% return good for an annualized return of 12.95%.

(2) If HAL is trading above $47 on August 17th, I'll have to sell 100 shares of HAL for $47 each.  Including the option premium and all commission and fees, this will give a sale price of  $47.07.

(3) If HAL shares trade down sharply between now and expiration, I can buy to close the call option.  Scenario 3 is pretty much a no go because the commission would eat up too much of the option premium.  So I'm going to let this one ride until expiration.

This latest call option isn't exactly the best deal but when combined with the overall trade from before of closing the previous call option this will net me a higher return.  If I had let the original call option go until expiration it would most likely have been executed and my sale price would have been $43.21 when including the strike price and premium I had received.  Despite taking a loss on that call option, my overall sale price will increase by $0.84 per share to $44.05 if the new call option is executed.  So I'll get a higher overall return in 2 months shorter time.  This is why making this trade was the best route to go.  I could have sold a call option that was further out from expiration, but decided to try and pick up this months premium since I will still be ahead of the first scenario and it gives me a way to diversify from my employer.  If I had my choice, this option would not be executed and I can sell a longer dated call option to help offset the loss from the first call option.

I'm glad to finally have the full down-payment in cash, well almost.  I'm waiting for my paycheck to clear on the 15th although I could get the rest right now if need be.  Over the last month I've made some big changes to my portfolio although almost all of the changes has been for the better.  I sold off almost all of my HAL shares and now only have 125 as opposed to the 737 from about 1.5 months ago.  This helped to fund almost the full down-payment as well as diversify away from my income source being a large portion of my assets too.

I'm very anxious for September to roll around so I can start investing once again.  There's several companies that I have my eye on at or near current prices such as IBM, GE as well as some REITs such as O, DLR, HCP, and OHI.  Happy investing everyone!

I've updated my Option Summary and Portfolio pages to reflect these changes.

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