PPC - Review

Here's a position on PPC that closed in September. The following is the trade history and returns, including IB commissions. This position was established before I changed my return and stock selection criteria.

09/19/05 - Bought 100 shares @ 35.17
09/19/05 - Sold 1 Oct05 35 Call @ 1.19
10/21/05 - Oct05 35 Call expired
10/24/05 - Sold 1 Nov05 35 Call @ 1.99
11/18/05 - Nov05 35 Call expired
11/23/05 - Sold 1 Jan06 35 Call @ 0.64
12/30/05 - Dividend received @ 0.02
01/13/06 - Dividend received @ 1.00
01/20/06 - Jan06 35 Call expired
01/23/06 - Sold 1 Mar06 30 Call @ 0.19
02/21/06 - Bought 100 shares @ 23.92
02/21/06 - Combined Cost Basis @ 29.55
02/21/06 - Sold 1 Mar06 30 Call @ 0.04
03/17/06 - Mar06 30 Calls expired
03/20/06 - Bought 100 shares @ 22.18
03/20/06 - Combined Cost Basis @ 27.09
03/20/06 - Sold 3 Sep06 25 Call @ 1.44
03/31/06 - Dividend Received @ 0.02
06/30/06 - Dividend Received @ 0.02
09/15/06 - Sep06 25 Calls exercised and stock called away
09/29/06 - Dividend Received @ 0.02

Stock Investment: $8,127.00
Income Generated: $958.00
Net Profit: $331.00
Percent Return: 4.07%
Annualized Return: 4.12%
Duration of Trade: 361 days

Buy & Hold Comparison

Opening Price: $35.17
Closing Price: $27.68
Dividends: $108.00
Net Profit: -$641.00
Percent Return: -18.23%
Annualized Return: -18.43%
Duration of Trade: 361 days

This is a good example of a position that was recovered by dollar cost averaging. If you look at a chart of PPC you'll see that the stock declined shortly after the initial purchase and never recovered. At one point, in Mar & Apr, it traded as low as $20.94, or down about 40%.

Rather than panic and sell at a loss, I used dollar cost averaging twice during this holding period to lower the cost basis of the stock, which allowed me to get out at a profit. I allowed the stock to get called away since I no longer wanted to hold this stock.

Notice that the stock was called away at a price ($25) that was 29% below the original purchase price ($35.17). By lowering the cost basis with dollar cost averaging the stock doesn't have to recover back to the original price. Also notice that $958 of income was generated during this period, which was reinvested in other positions.

The annualized return on this position wasn't great, in fact I could have done better in a money market account. However, it beat buy & hold, which was down over 18% annualized. Sure I probably could have done better with a different stock, by the point here is that I didn't lose money. Sometimes positions don't work out, but if managed properly you can still preserve your capital and come out ahead.