DGI Adventure

Portfolio Summary

Stock Purchases

5 stocks purchased. 3 are new positions, 2 are additions to existing positions; projected annual income increased by $384.00 based on current dividends.

06/02/17 - VLO: 100 shares purchased @ $64/share. This was the result of an option assignment. I sold the contract on 5/11/17, but didn’t do a blog post about it because I’m a horrible person. That’s why I’m documenting all my trades on the twiiter from here on out. I already owned 25 shares of VLO in my ROTH IRA at $67/share, so I’m averaging down with this purchase.

Annual projected income is increased by $292.00/year based on the projected annual dividend of $2.92/share.

06/02/17 - GPS: 100 shares purchased @ $23.00/share. This was also the result of an option assignment. I sold the contract on the same day as the VLO contract discussed above. I already owned 56 shares of GPS in my ROTH IRA at ~$22.52/share, so this is a position increase at more or less the same cost basis.

Annual projected income is increased by $92.00/year based on the projected annual dividend of $0.92/share.

06/30/17 - BND: 106 shares purchased @ $82.0494339/share. This is the “bonds” component of my Lazy Portfolio Experiment. Since I will be automatically (rather than selectively) reinvesting these dividends, I don’t count this income towards my projected annual investment income. That’s just how I do it. Get over it.

06/30/17 - VTI: 139 shares purchased @ $125.3870943/share. This is the “US equities” component of my Lazy Portfolio Experiment. Since I will be automatically (rather than selectively) reinvesting these dividends, I don’t count this income towards my projected annual investment income. That’s just how I do it. Get over it.

06/30/17 - VXUS: 244 shares purchased @ $52.375/share. This is the “International equities” component of my Lazy Portfolio Experiment. Since I will be automatically (rather than selectively) reinvesting these dividends, I don’t count this income towards my projected annual investment income. That’s just how I do it. Get over it.

Choose the Form of the Destructor

I didn’t initiate any new UVXY positions, although Thursday 6/29/17 might have been one of the better opportunities in a while. I missed it though.

I’m not giving up on this crowded trade quite yet, but I am being extremely selective about entry points.

All UVXY put trades are documented in the “UVXY” tab of the Dividend Income Tracker, and future trades will also be documented on the twitter.

For the uninitiated, I am shorting UVXY because it is the worst ETF ever. I use long put positions so I can avoid the use of margin and do these trades in tax-advantaged accounts.

Additional exploits can be found here, here and here.

Pay Days and Raises

Dividend Income Tracker is published back at the mothership and has been updated.

Total investment income of $1,234.91 with a taxable total of $6.93. We’ll call it 12 “pay days” with 28 individual payments received.

Options premiums represent $48.12 of that total.

Capital gains made up $716.66.

Which leaves $463.20 of actual bona fide dividends (and $6.93 of P2P lending interest).

Last month I said, “That’s probably my lowest options total in a long time. I told you it was a quiet month!”

Considering what June was like last year, I wouldn’t have expected to follow up May with even less options activity, but here we are.

Lending club income is aggregated into a single income record for simplicity’s sake. It actually arrives as a lot of small payments over the course of the month. One loan was charged off this month, although my net income was still *barely” positive in spite of that loss. That brings the number of bad loans we’ve invested in to a total of 5 out of 166 or ~3%.

We went from 5 “late” loans last month to only 3.  Since only one of those was charged off, at least one got caught up, which I guess is good news, but it was replaced by another in the grace period.

There is still trouble brewing, and like I mentioned last month, July could get ugly.

This should be fun to track. This table will grow with each monthly update.

Lending club’s algorithm is suggesting I should write down $50.36 worth of principal for the loans that are late or in the grace period, but as the eternal optimist, I’m going to continue to wait until the loans are actually charged off to recognize the loss.

That is down from what it suggested last month ($67.97), but it represents nearly the full amount of principal currently in the 31-120 days late category, so I guess I shouldn’t hold my breath on those.

Comparisons

Month over month, investment income was down slightly by -6.2% from $1,316.75 in May, but year over year it is up 4.0% from $1,187.35 in June of ‘16.

May of 2016 is when I took my leap of faith and moved my inherited IRA over to Interactive brokers. So this is really the first YoY comparison that reflects the same options boosting dividends strategy. It would be nice to see a bigger jump, but hey I’ll take it.

Raises

One of the dividend distributions received represented a raise:

JNJ paid $0.84/share compared to $0.80/share in the previous quarter. That represents a 5.0% increase. I would argue that is a little disappointing from this dividend champion. The share price has appreciated quite a bit since my wife made this investment in February of this year. The forward yield is pushing down to the 2.5% range, which means either Mr. Market is pricing in bigger than 5% increases, or using a different future discount mechanism.

Now Martha is pretty smart, and she’s also pretty frugal, so she was most interested in options 2 and 3, but in either case I was telling her that she should invest a little time into learning about “financial stuff” which she finds daunting. So she wanted to know how much time exactly?

Now, some folks might quibble with me here. This is where my bias against robo advisors or any type of advisor for that matter probably shows, but I firmly believe that if a robot is going to make your investing decisions, you really owe it to yourself to at least learn the basics. It’s your freaking money after all. You should have a minimal understanding of what the robot is up to. (I think this is true if you hire a dude too, but I digress).

Anyway, the logic progresses that if you’re going spend the time to learn the basics, why not just do it yourself?

This surprised Martha. She didn’t really think that you could “do it yourself” with only a minimal amount of knowledge or time invested.

Then I said something like, “Oh sure...you could manage your own finances and put all your extra wealth into like 4 index ETFs and rebalance annually. It would be a perfectly reasonable investment approach that would probably be as good or better than the dude or the robot, and it would require less than a couple hours of initial “education”, and like 30 minutes a year to do the rebalancing.”  

“Really?” Martha asked. “Will you share that list of 4 ETFs with me?”

“Sure.”

I haven’t made good on that promise, until now. So this post is kind of for Martha.

But it’s also for the Wizard Family.

I’m turning the Traditional IRA (account #2 on the portfolio page) into our “Lazy Portfolio Experiment”.

This portfolio represents what literally anyone could do with nearly zero thought or effort regardless of their level of financial sophistication. The only difference is that I will be rebalancing quarterly instead of annually. That would probably be too often for most retail brokerages because the fees will eat you alive, but this account is with Interactive Brokers, so the fees are a lot less and you kind of have to be more active to get your money’s worth. I think it’s a reasonable compromise. It’s still cheaper than the robot.

I’m doing this for two reasons:

I think it will be a fun experiment to see how this completely hands-off, passive approach works compared to the other accounts that I’m actively managing and

I’m a buy and hold agnostic. I believe that stocks can be under- or overvalued, so to some extent I’m going to spend a lot of my resources chasing that alpha. But I’m far from convinced that I’ll be especially good at that, so there is also a pretty good amount of our wet wealth that is put into passive investing vehicles and this is part of that.

So what’s the portfolio?

Full disclosure...it’s not like I came up with this myself. In the spirit of being completely lazy, I google searched “4 ETF portfolio” and found this at the Bogleheads wiki site.

It’s not rocket science. What should I invest in? Stocks, bonds and real estate.

Now granted this skews a little heavy towards US based assets. The only international exposure is in stocks. But given the fact that the rule of law and private ownership are pillars of our society, it’s not a bad idea to stick to America when investing in debt and real estate. You can get into some weird shit out there in countries where the government might just take your land or force a company into bankruptcy or whatever. I think there should be some global exposure, but it’s best limited to equities where the rules are a little more sophisticated (and modeled after ours).

Plus it’s where both Martha and I live. Go ‘Murica!

Sorry...no gold. 

Gold sucks.

Now the allocation percentages are a matter of personal preference and situation. That’s where the time spent on self-education comes in. One might want a higher or lower allocation of one asset class over another. This asset allocation is what I came up with based on my preferences and personal situation. That bogleheads site is a good starting point. Reading that, and clicking around to flesh out some basic concepts shouldn’t take too long.

It’s probably important right now that I reiterate my disclaimer.

No one should make investment decisions based on what a whackadoodle writes on the internet.

So let’s be absolutely clear that NONE OF THIS IS INVESTMENT ADVICE!

But it is my opinion that this would be a perfectly reasonable way for one to invest one’s money without putting a lot of thought and effort into the process. In 20 years, this portfolio will probably be a lot better off than if the money were just in a savings account or the sock drawer or something.

In fact I think it’s so reasonable, this is how I’m investing $43K of my family's money.

$43,238.59 to be exact (account value at market close yesterday).

Portfolio Summary

Stock Purchases

2 stocks purchased. Both are additions to existing positions; projected annual income increased by $155.36 based on current dividends.

05/03/17 - GE: 41 shares purchased @ $28.88/share plus $6.95 trade commission for a total investment of $1,191.03. This was a limit order my wife put in a while ago. Usually this is where I will marvel at her ability to use limit orders to pick off the most perfect moment to buy a stock. Not so much this time around. GE has been getting hammered over the last month. Oh well.

Annual projected income is increased by $39.36/year based on the projected annual dividend of $0.96/share.

5/05/17 - CSCO: 100 shares purchased @ $32.50/share. This was the result of an option assignment. You may remember from last month, that I got assigned CSCO at $34 on a put that I sold in March but never wrote about. Well I followed that with a covered strangle, in April, which I also didn’t write about. For the uninitiated, that means I sold a call against my shares at a strike above my cost basis, but I also sold another put (with the same expiration date as the call) below my cost basis. If the price goes up, you sell your shares, if it goes down, you buy more but average down your position. If it’s flat you keep the premium. You can’t get assigned on both! Well the price went down, so now I own 200 shares of CSCO. The share price is still well below my cost basis. I’m not sure I’m ready to buy more yet though. We’ll see I guess.

Annual projected income is increased by $116.00/year based on the projected annual dividend of $1.16/share.

I closed out of my open UVXY put positions.

I sold 2 contracts of the UVXY 18JAN19 15.00 P for $9.79555/share, which represents a 4.12% net profit over my cost of $9.40793/share. I bought the puts on 3/24/17, which means the trade was in play for 45 days, so my annualized return works out to 33.42%.  

Not too shabby. I’m averaging a 78% annualized return on this trade. It feels like it’s getting crowded though, which means it’s harder to find attractive entry/exit points. The market makers seem to be getting a lot better at pricing the price decay into the premium. I’m not ready to give up on it yet, although I didn’t replace the closed positions.

All UVXY put trades are documented in the “UVXY” tab of the Dividend Income Tracker.

For the uninitiated, I am shorting UVXY because it is the worst ETF ever. I use long put positions so I can avoid the use of margin and do these trades in tax-advantaged accounts.

Additional exploits can be found here, here and here.

Pay Days and Raises

Dividend Income Tracker is published back at the mothership and has been updated.

Total investment income of $1,316.75 with a taxable total of $31.38. We’ll call it 13 “pay days” with 29 individual payments received.

Options premiums represent $180.85 of that total.

Capital gains made up $777.52.

Which leaves $358.38 of actual bona fide dividends (and $31.38 of P2P lending interest).

That’s probably my lowest options total in a long time. I told you it was a quiet month!

Lending club income is aggregated into a single income record for simplicity’s sake. It actually arrives as a lot of small payments over the course of the month. No loans were charged off this month, but the backlog of troublemakers is growing. There are currently 5 loans that are “late”. 2 of them are “kinda late” and 3 of them are “very late”. The loans in the 31-120 days category should still stay alive for at least another month. If things don’t turn around though, July might be ugly for the Lending club account.

This should be fun to track. This table will grow with each monthly update.

Lending club’s algorithm has suggested I write down $67.97 worth of principal for the loans that are late or in the grace period, but as the eternal optimist, I’m going to continue to wait until the loans are actually charged off to recognize the loss.

That is nearly double what it suggested last month ($36.91), which kinda speaks to that impending doom I predicted above.

Comparisons

Month over month, investment income was up 103.4% from $647.42. The bulk of that difference comes from the capital gains realized when my WMT covered call was assigned. Things were pretty stable actually.

Year over year is kind of a weird one. May of 2016 is when I took my leap of faith and moved my inherited IRA over to Interactive brokers. To do that, I liquidated a bunch of mutual funds that weren’t available on the IB platform, which resulted in an $8,100 capital gain. Total income from May of last year was $7,471.48. So YoY is kind of a silly comparison.

Going forward though, YoY should be pretty comparable since June 2016 is when I started fully executing my current options strategy in the inherited IRA.

Raises

One of the dividend distributions received represented a raise:

AAPL paid $0.63/share compared to $0.57/share in the previous quarter. That represents a 10.52% increase. The share price has appreciated quite a bit since my wife made this investment in January of 2016, so even though this is a very healthy dividend increase, the market yield is down to 1.6%. Her invested yield is over a point higher at 2.65%, which is nice.

I closed this article last month asking if it was time to “sell in May and go away”. 

Portfolio Summary

Stock Purchases

4 stocks purchased. And I didn’t write individual posts about any of them because I’m a horrible blogger.

All are additions to existing positions; projected annual income increased by $446.00 based on current dividends.

04/07/17 - CSCO: 100 shares purchased @ $34.00/share. This was the result of a put option assignment. The original option was sold on 3/20/16, and I didn’t write about it because I’m a horrible blogger. Sorry.

Annual projected income is increased by $116.00/year based on the projected annual dividend of $1.16/share.

4/10/17 - BLW: 300 shares purchased @ $6.23/share. Believe it or not I’m continuing to build my CEF portfolio. The goal is still to cover the annual RMD in the beneficiary account using closed end bond funds. I’m about halfway there after this month’s purchases. Everybody makes a big deal about how bond prices are going to crash because interest rates are going to go up. I’ve been waiting over a year and am getting a little impatient.

Annual projected income is increased by $95.4/year based on the projected annual dividend of $0.318132/share.

4/10/17 - BKT: 150 shares purchased @ $15.69/share. More CEF portfolio building. Bonds are boring, what can I say?

Annual projected income is increased by $156.60/year based on the projected annual dividend of $1.044/share.

4/10/17 - DSU: 100 shares purchased @ $11.61/share. The last of the CEF purchases this month. All three of these were going ex-div on 4/11 so I decided to pick some up.

Annual projected income is increased by $78/year based on the projected annual dividend of $0.78/share.

I was inactive with my UVXY puts. My previous position, which are still open, are:

2 contracts of the UVXY 18JAN19 15.00 P (bought 3/24/17 for $9.40793/share)

I have no way of projecting what kind of income these trades will generate, but I am pretty confident they will be positive. The positions I liquidated in march, netted a ~21% and ~46% annualized return.

All UVXY put trades are documented in the “UVXY” tab of the Dividend Income Tracker.

For the uninitiated, I am shorting UVXY because it is the worst ETF ever. I use long put positions so I can avoid the use of margin and do these trades in tax-advantaged accounts.

Additional exploits can be found here, here and here.

Pay Days and Raises

Dividend Income Tracker is published back at the mothership and has been updated.

Total investment income of $647.42 with a taxable total of -$16.33. We’ll call it 12 “pay days” with 29 individual payments received.

Options premiums represent $318.86 of that total.

There were no capital gains realized.

Which leaves $344.89 of actual bona fide dividends (and $-16.33 of P2P lending interest).

Pretty even split. This is a dividend blog after all!

Lending club income is aggregated into a single income record for simplicity’s sake. It actually arrives as a lot of small payments over the course of the month. Two more loans were charged off this month which is why the monthly income total was negative. In the course of the month the two loans that were in the grace period managed to fall into the 31-120 days late category. That must mean they’re just barely over 31 days late. Presumably I shouldn’t have any more charge offs for at least a couple more months. Also not too many troublemakers in the pipeline.

This should be fun to track. This table will grow with each monthly update.

Lending club’s algorithm has suggested I write down $36.91 worth of principal for the loans that are late or in the grace period, but as the eternal optimist, I’m going to continue to wait until the loans are actually charged off to recognize the loss.

Last month the algorithm suggested I write off $62.80. The difference as I’m learning is not the number of loans in each category but the severity of the issue. So last month we had 2 VERY late loans that evidently were about to get charged off. This month we have 2 loans in the same “category” but they’re obviously not as late, so there’s a lower adjustment.

Comparisons

Month over month, investment income was down from $1,123.47 or -42.37%.

Year over year on the other hand represents a bit of a bump. In April of 2016 I earned $585.52 in passive income. This month represents a 9.56% increase over that total.

Pretty soon I will have been doing the whole dividend investment boosted by options trading thing for a whole year. The YoY totals are going to tighten up a bit.

Raises

One of the dividend distributions received represented a raise:

WMT paid $0.51/share compared to $0.50/share in the previous quarter. That represents a 2.0% increase which is pretty sad. Shares closed Friday at $75.18. With a quick and dirty DDM analysis (single stage, 10% discount), WMT would need a 7.3% DGR for the current share price to be “fair”. I have an open call contract with a $74 strike and a May08 expiration against the WMT shares in the inherited IRA. The value might be a bit stretched right now.

The CSCO dividend also represented an increase, but since I didn’t own shares previously I don’t count it here in this section. It was a good one too: $0.29 vs $0.26 which is 11.5%

I closed this article last month with this statement:

Here’s looking forward to an interesting April

Portfolio Summary

Stock Purchases

6 stocks purchased. Technically I guess you would have to say that all six are “new” positions, but several are stocks that we’ve owned previously; projected annual income increased by $840.56 based on current dividends.

03/02/17 - VLO: 25 shares purchased @ $67.00/share for a total investment of $1,681.95 including $6.95 commission. I previously owned VLO shares in both the inherited IRA and the taxable account. The taxable shares were sold as part of the great catfishwizard taxable liquidation in January. I lost the IRA shares to a covered call that was assigned early for the last ex-div date. I failed to mention that early assignment because that was right when we were moving. One of the glossed over trades during that period was a sold VLO put on 2/10/17. That’s what I did instead of rolling the covered call that I knew I was going to lose. Anyway, I still like me some VLO, so I bought shares in my ROTH.

Annual projected income is increased by $70.00/year based on the projected annual dividend of $2.80/share.

3/6/17 - CSCO: 44 shares purchased @ $34.00/share for a total investment of $1,502.95 including $6.95 commission. I’ve been fairly active with selling puts against CSCO shares, but haven’t been assigned yet. It occurred to me that back when I ran my original investment thesis, I projected “fair value” at $34.67 assuming a 7% dividend growth rate. Then management announced an 11.5% increase in the upcoming quarterly distribution, and I decided to get some shares for the ROTH.

Annual projected income is increased by $51.04/year based on the projected annual dividend of $1.16/share.

3/15/17 - SBUX: 28 shares purchased @ $54.12/share for a total investment of $1,522.31 including a $6.95 commission. This was one of Mrs. Wizard’s pickups. She is very, very good at randomly picking a price point for her limit orders and having that price point end up being a short term low for the share price. Maybe it’s not really random. Whatever her system, she’s pretty good at it.

Annual projected income is increased by $28.00/year based on the projected annual dividend of $1.00/share.

3/17/17 - TGT: 100 shares purchased @ $56.50/share for a total investment of $5,650.00. No commissions were charged since this was the result of a put option that was assigned. The contract that was sold was another one of those glossed over trades in February. I immediately started selling covered calls against this new position. I’m not sure I trust TGT as far as I can throw it right now.

Annual projected income is increased by $240/year based on the projected annual dividend of $2.40/share.

3/17/17 - SPY: 100 shares purchased @ $238.50/share for a total investment of $23,850.00. No commissions were charged since this was the result of a put option that was assigned. I got a wild hair and decided I had to get this quarter’s SPY dividend. I didn’t actually get it, but I got the equivalent (and then some) by selling an extremely short-dated at-the-money put the day before ex-div. Of course then the market corrected. So it goes. I’m selling covered calls.

Annual projected income is increased by ~$400/year based on who knows what. I have no idea how dividends are calculated for SPY, but they seem to be ~$1.00/share/quarter.

3/21/17 - GPS: 56 shares purchased @ $22.93/share for a total investment of $1,291.03 including $6.95 commission. I used to own GPS in my taxable account before the great catfishwizard taxable liquidation. I’ve almost lost count of how many times I’ve sold puts against GPS shares, but haven’t been assigned. With the execution of the other ROTH purchases described above, I decided to put in a limit order that would use up the remaining funds (or close to it) buying GPS if it dropped to the right level.

Annual projected income is increased by $51.52 based on the current annual dividend of $0.92/share.

I also purchased more UVXY puts. The new positions, which are still open, are:

2 contracts of the UVXY 18JAN19 15.00 P (bought 3/24/17 for $9.40793/share)

I have no way of projecting what kind of income these trades will generate, but I am pretty confident they will be positive. The positions I liquidated this month, netted a ~21% and ~46% annualized return.

All UVXY put trades are documented in the “UVXY” tab of the Dividend Income Tracker.

For the uninitiated, I am shorting UVXY because it is the worst ETF ever. I use long put positions so I can avoid the use of margin and do these trades in tax-advantaged accounts.

Additional exploits can be found here, here and here.

Pay Days and Raises

Dividend Income Tracker is published back at the mothership and has been updated.

Total investment income of $1,123.47 with a taxable total of $30.01. We’ll call it 15 “pay days” with 38 individual payments received.

Options premiums represent $557.64 of that total.

Capital gains represent $151.30 of that total.

Which leaves $384.52 of actual bona fide dividends (and $30.01 of P2P lending interest).

I feel like that’s a pretty balanced split for once...

Lending club income is aggregated into a single income record for simplicity’s sake. It actually arrives as a lot of small payments over the course of the month. In December I experienced my first “charged off” loan, and last month I officially had to write off one more. Now there are two loans that are late (between 31 and 120 days), and two that are in the grace period. That’s an improvement:

This should be fun to track. This table will grow with each monthly update.

Lending club’s algorithm has suggested I write down $62.80 worth of principal for the loans that are late or in the grace period, but as the eternal optimist, I’m going to continue to wait until the loans are actually charged off to recognize the loss.

Last month the algorithm only suggested I write off $56.20, which is interesting, because I have the same number of loans in the “extremely late” category, but obviously two of the loans that had drifted into the grace period were brought current. So “extremely late” loans getting later is more of a problem than can be offset by a couple grace periods getting cleared up. Huh...

Comparisons

Month over month, investment income was down from $1,402.42 or -19.89%.

Year over year on the other hand represents a nice bump. In March of 2016 I earned $451.97 in passive income. This month represents a 149% increase over that total.

Raises

One of the dividend distributions received represented a raise:

GILD paid $0.52/share compared to $0.47/share in the previous quarter. That represents a 10.64% increase. Mr. Market hates GILD right now because it’s not doing anything with it’s giant horde of cash except sitting on it and returning it to shareholders in the form of dividends and buybacks. They must have a lot of confidence in their pipeline. I’m so underwater on my cost basis, that I’m going to have to hang on for a while to find out.

Expiring Positions

Position #1 TGT MAR17 ‘17 $56.50 PUT

This contract was originally sold on 2/28/17 and it was one of the trades that I glossed over with a summary post. If you own TGT or if you’ve been following it closely, you probably remember February 28th. Management reported earnings that morning, and Mr. Market freaked the fuck out.

Observant readers may remember that a previous TGT put I sold back in October of last year (at a $67 strike) was assigned right before the idiot in chief got elected. The market went bananas, and I elected to sell a covered call, which also got assigned although I didn’t really write about that specifically, the income was simply tabulated in the December summary.

I did pretty well on that sequence of trades, and then the stock price started coming back down. I sold another put in January that expired before the earnings kerfuffle. I was fortunate to not have an open position on the day of the earnings announcement.

So I opened this one, which expired on Friday. It was over 4% in the money (shares closed $54.29), which means I got assigned. I’m the proud new owner of 100 shares with a cost basis of $56.50.

Ex-div isn’t until May, so I will probably go ahead and start selling covered calls while the share price is still kind of close to my cost basis. Feels like this one might get worse before it gets better. Mr. Market hates TGT right now.

Position #2 QCOM MAR17 ‘17 $55.00 PUT

This trade was glossed over in the same summary post as the TGT put discussed above. Shares closed Friday at $57.55 which is pretty comfortably out of the money. The contract expired worthless and I will be looking to go to the well again. In my recent investment thesis, I identified a $60/share threshold as approximately “fair value” assuming the company can achieve a 6.5% dividend growth rate. Granted, I would like a little bit more margin of safety, but we’ll see what the options market is like. I will be looking to maximize downside protection while preserving my minimum target of 12%+ annualized premium return.

Position #3 SPY MAR17 ‘17 $238.50 PUT

I actually haven’t posted about this trade yet. I’m going to count today’s discussion as this trade’s official publication (rather than generate a totally separate post).

I sold this contract on Thursday 03/16/17 after my previous SPY put expired worthless on Wednesday 3/15/17. I had been hoping to get assigned on Wednesday, so I could hold the shares through ex-div on Friday to collect the $1.033/share quarterly dividend distribution. No such luck.

So then on Thursday afternoon I was evaluating my options:

Do Nothing

Buy SPY shares for ~$238.40 (that was the share price towards the end of the day on Thursday...it actually closed at $238.48)

Do an options trade.

At that point I had gotten my heart set on that dividend. Plus option 1 is just boring. As much as I love options trading, I did seriously consider just buying the shares. But the at-the-money strikes had a little bit of premium juice in them, and I couldn’t resist.

I sold the put, which expired the next day, for $121.27 ($1.22 per share less $0.73 commission).

That sounds HUGE, and my dividend income tracker incorrectly calculated a 185% annualized return. But there’s more to the story than just the total. We have to break that premium down a little bit to understand why I could get so much for a one day trade.

Since the next day was going to be ex-div, $103.30 of that was technically intrinsic value, since the share price was about to drop $1.0333 for Friday’s open.

Since shares were trading at ~$238.40 at the time of the trade,  we’ll say that there was $10 of intrinsic value from the contract being in the money. So that leaves $7.97 in extrinsic value, which isn’t much, but that does technically work out o a 12.2% annualized return since the trade is only in force for one day.

The end result is basically the same as if I had bought 100 shares of SPY that afternoon; i.e. I get $1.033 worth of “dividend” and my cost basis is around $238.50.

Of course if I bought the shares I would have a cost basis $0.10/share lower...but I got the $10 of intrinsic value from the premium sold, so it’s really the same as if I had bought the shares at the lower price and “saved” $10.

PLUS...I don’t have to wait until April to get my $1.033/share. I got it on Thursday.

PLUS...there was a chance (albeit a small one) that the share price would rally back and I would get all that premium without having to buy any shares. That didn’t happen, but there was a chance.

PLUS...I got an extra 8 bucks. It’s 8 bucks more than I had before.

Position #4 VNQ MAR17 ‘17 $85.00 CALL

So evidently I didn’t write about this trade when I opened it? Sorry, dear readers...I guess I missed this one. It’s been a crazy couple months.

Anyway, I did mention in one of my catch up posts that I recently rolled my old 401K from my previous employer into my traditional IRA account (account #2 in the portfolio back at the mother ship). That brought the account value up over $40K, which is enough for me to start looking at executing my options strategies. It was time to say goodbye to uncle Schwab, and move the account to Interactive Brokers.

Even though I’m trading options, I’m keeping to a passive indexing theme. So the idea is that in this account I trade options on index funds.

I keep saying that someday I’m going to write about my REIT crisis of faith, and believe me...I will. Until then, you will just have to understand that I’m done trying to pick individual REITs and will be getting exposure to that asset class through VNQ, which is Vanguard’s REIT index fund.

I already had quite a few shares of VNQ when it was a Schwab account. After it got to Interactive Brokers, I topped the position up to 100 shares and sold this covered call.

Towards the end of February, this position was briefly in the money, but then it quickly became apparent that the Fed would raise rates on Wednesday, and VNQ’s share price collapsed. My cost basis in VNQ is $81.6613/share, and it closed at $82.44 on Friday, so I’ll be looking to sell another call this week if the opportunity presents itself.

Theoretically it should go ex-dividend pretty soon, although who knows when or how much it will be.

So that concludes our expiry discussion for this month. 2 out of 4 positions are getting assigned.

So it goes.

Miscellany

Things are starting to settle down a bit with our move to Denver. We’re more or less unpacked, and figuring out the city and our new jobs and all of that.

It’s still been pretty hard for me to keep up with all of our trades though.

Both Mrs. Wizard and I have made a few purchases in our ROTH IRAs by way of limit orders being executed. Here’s a summary:

Mr. Wizard - 2 purchases:

Purchase #1 - 03/02/17

VLO: 25 shares at $67/share for a total investment of $1,681.95 (including $6.95 trade commission).

I used to have 26 shares of VLO in the taxable account, but they were sold in the Great Catfishwizard Taxable Liquidation, I still love VLO stock and decided that as a relatively high yielder, it was perfect for my ROTH. Original investment thesis is published here, although after the recent dividend increases, the “fair value” is quite a bit higher. I’m due to revisit that thesis, and likely will when I sell my next put in the Beneficiary IRA.

Purchase #2 - 03/06/17

CSCO: 44 shares at $34/share for a total investment of $1,502.95 (including $6.95 trade commission)

With the recently announced 11.5% dividend increase, this gives me an invested yield of 3.4%, which is great for a tax advantaged account. Original investment thesis is here, although again fair valuations need to be adjusted to account for dividend increases.

Mrs. Wizard - 1 Purchase:

Purchase #1 - 03/15/17

SBUX: 28 shares at $54.12/share for a total investment of $1,522.31 (including $6.95 trade commission).

The original investment thesis was published back in June of last year. I’ve sold a number of puts since then, none of which have gotten assigned.

Don’t ask me where she comes up with these limit order amounts, but she is pretty good at it. The intraday low was $54.09.

SBUX 3 Month Chart - Courtesy of Yahoo Finance

So that gets us *mostly* caught up. There is still one more put that I sold last week that I haven’t written about yet, and some UVXY updates. Hopefully I’ll get to those and will be able to get back into the groove of posting each trade relatively quickly.

Portfolio Summary

Some commentary:

The effect of our down-payment is pretty evident in the month over month slide. However I’ll note that even after this massive capital outlay, February’s total “wet worth” is still up over $45K year over year, which is a 14.58% increase from this time last year. I feel pretty good that we were able to sink $60K into a second property and still show that kind of growth in liquid assets.

Also, my “Projected Annual Income” figures have been goofy for a while now. I suppose I owe the audience an explanation.

I have to admit that I was tracking this largely in imitation of other DGI bloggers. I have come to realize it’s a pretty silly metric.

For one thing, dividends aren’t guaranteed, and setting goals around projected 12 month income figures runs the risk of “counting one’s chickens before they’ve hatched”.

Secondly, since I generate a lot of my investment income through options, it can be a highly variable figure. For consistency’s sake I have always annualized the income I receive from selling an option. For example, if I sell an option for a premium of $100 and the trade is in force for 30 days, I will project that premium to an “annualized” income of $1,216.67, because if I made $100 every 30 days for 365 days, that’s how much I would make.

There’s a logic to counting it that way, but the result is that my projected income bounces all over the place depending on volatility in the market and how many trades I have open. Dividends may not be guaranteed, but they’re at least pretty stable regardless of market conditions. The same cannot be said for options.

So the flaw in counting it this way is that I’m highly unlikely to be able to make the same $100 trade every 30 days 12.166666 times in a row.

I’m okay with it though because it acts as a barometer for the portfolio. Even though the actual income I earn over the next 12 months is unlikely to exactly equal the projected value, I do at least get a sense of the aggressiveness of the portfolio’s current positions.

In that vein I happened to sell an SPY put on 2/28 that was open for one day before it expired yesterday on 3/1. I made $32.90 in premium, which if I could do that 365 days a year works out to $12,008.50 “annually”. Obviously that’s impossible for a multitude of reasons, but since the position happened to be open at month end, it made it’s way into this update, and bore mentioning in my opinion.

I’ll cover that trade in my February catch up post later this week. I do intend to get a little more aggressive with my SPY put trades as the ex-div date approaches (quadruple witching), and so my projected annual income should reflect that aggressiveness for the next few weeks.

See? It all comes together.

Stock Purchases

1 stock purchased. 1 new position; projected annual income increased by $41.60 based on current dividends.

02/06/17 - JNJ: 13 shares purchased @ $112.80/share. My wife set a bunch of limit orders in her ROTH IRA at the beginning of the month, and this was the only one that executed. Long time readers may remember the first investment thesis posted in September of 2015. In hindsight, she would have been better off just buying it at $91/share back then rather than monkeying around with limit orders but so it goes. Thou can’t time the market so thou shalt not try to.

Annual projected income is increased by $41.60 based on the current annual dividend of $3.30/share, but I expect management to announce an increase next quarter.

I also purchased more UVXY puts. The new positions, which are still open, are:

2 contracts of the UVXY 18JAN19 20.00 P (bought 2/23/17 for $13.27425/share)

I have no way of projecting what kind of income these trades will generate, but I am pretty confident they will be positive. 

The positions I liquidated this month, netted a ~70% annualized return.

All UVXY put trades are documented in the “UVXY” tab of the Dividend Income Tracker.

For the uninitiated, I am shorting UVXY because it is the worst ETF ever. I use long put positions so I can avoid the use of margin and do these trades in tax-advantaged accounts.

Additional exploits can be found here, here and here.

Pay Days and Raises

Dividend Income Tracker is published back at the mothership and has been updated.

Total investment income of $1,402.42 with a taxable total of $3.17. We’ll call it 9 “pay days” with 28 individual payments received.

Options premiums represent $368.31 of that total.

Capital gains represent $796.24 of that total.

Which leaves only $234.70 of actual bona fide dividends (and $3.17 of P2P lending interest).

Is this even a dividend blog anymore?

IDK...I’d like to think it is....

Lending club income is aggregated into a single income record for simplicity’s sake. It actually arrives as a lot of small payments over the course of the month. In December I experienced my first “charged off” loan, and this month I officially had to write off one more, which is why the “income” was so low. Now there are two loans that are late (between 31 and 120 days), and four that are in the grace period. Although the charge off is a bummer, the other categories kind of improved over last month:

This should be fun to track. This table will grow with each monthly update.

Lending club’s algorithm has suggested I write down $56.20 worth of principal for the loans that are late or in the grace period, but as the eternal optimist, I’m going to continue to wait until the loans are actually charged off to recognize the loss.

Comparisons

I’m not going to bother with month over month comparisons since the capital gains recognized from the “The Great Catfishwizard Taxable Liquidation” has completely distorted those data. We can return to that feature next month.

Year over year on the other hand represents a nice bump. In February of 2016 I earned $636.07 in passive income. This month represents a 120% increase over that total.

Raises

One of the dividend distributions received represented a raise:

OHI paid $0.62/share compared to $0.61/share in the previous quarter. That represents a 1.64% increase, which may not sound like much, but considering that OHI has raised the dividend every quarter for 18 consecutive quarters, it’s pretty sweet. Last February’s distribution was $0.57/share, so year over year the dividend is up 8.8%.

At a 7.6% yield, it’s starting to get into the maybe too good to be true territory? IDK...I still don’t really understand REITs.

The QC (Quantitative Case)

SPL (Strike Price Logic)

I like QCOM at a 4% yield, which at the current distribution represents a $53 share price. $51.50 is well below that. The company has some legal trouble at the moment and no shortage of issues in China. Methinks a margin of safety is warranted.

QWaF (Qualitative Warm and Fuzzy)

QUALCOMM owns 3G and 4G technology. And they enjoy a steady stream of royalty income as a result.

Mobile technology is the lynchpin of modern society much less modern capitalism.

As long as people expect mobile technology to send and receive data, QUALCOMM will be there making money.

CPR (Cold and Prickly Risks)

QCOM’s business model is primarily based on collecting royalties on the aforementioned technologies that they own. Government regulators and/or lawsuits could seriously poop in that punch bowl. That’s why the stock price plummeted on news of Apple’s lawsuit last month:

QCOM 3 Month Chart - Courtesy Google Finance

I sold this put after the recent Apple lawsuit was announced. I believe that QUALCOMM will be able to defend its patents and royalties. 

Even if they can’t entirely defend that revenue, it will take years before it has an impact.