RMBS - Closed

The RMBS Feb07 22.50 Call was exercised and the stock was called away for a profit. The following is the trade history and returns, including IB commissions.

Covered Call Results

Stock Investment: $5,310.00
Income Generated: $1,427.50
Net Profit: $617.50
Percent Return: 11.63%
Annualized Return: 14.24%
Duration of Trade: 298 days

Buy & Hold Comparison

Opening Price: $38.33
Closing Price: $22.63
P/L per Share: -$15.70
Shares: 100
Dividends: $0.00
Net Profit: -$1,570.00
Percent Return: -40.96%
Annualized Return: -50.17%
Duration of Trade: 298 days

Trade History:

24-Apr-06 - Initial Stock Position - BTO 100 RMBS @ 38.33 -
24-Apr-06 - Initial Call Option - STO 1 May06 35.00 Call @ 7.49 - Expired
23-May-06 - Continued Trade - STO 1 Nov06 35.00 Call @ 3.09 - Closed
25-Jul-06 - Buy Back - BTC 1 Nov06 35.00 Call @ -0.26 -
25-Jul-06 - Dollar Cost Averaging - BTO 100 RMBS @ 14.77 -
25-Jul-06 - Combined Cost Basis - $5,310.00 200 @ 26.55 -
25-Jul-06 - Continued Trade - STO 2 Jan07 25.00 Call @ 1.09 -
27-Dec-06 - Buy Back & Roll Out/Down - BTC 2 Jan07 25.00 Call @ -0.16 -
27-Dec-06 - Continued Trade - STO 2 Feb07 22.50 Call @ 1.04 - Exercised
16-Feb-07 - Option Exercised - EX 2 Feb07 22.50 Call @ 22.50 -

RMBS was a SysCW position I tried, which is something I'll never do again. I have a lot of respect for the folks at SysCW but I don't share their same risk tolerance. I've learned that you need to establish your own comfort level and stock criteria that's suitable for your risk tolerance, and not just follow someone else's trades. That goes for all of you reading this blog. Just because I establish a position in a certain stock doesn't mean that you should also. If a stock doesn't meet YOUR criteria then you shouldn't buy it, period.

RMBS is a very volatile stock with great premiums, but that's not a good enough reason to buy it. RMBS is delinquent in its regulatory filings and in danger of being de-listed, although NASDAQ recently stayed the de-listing. This is a very risky stock and doesn't meet my new criteria, so I let it get called away and luckily got out at a profit.

As the chart for RMBS shows the stock hit a low of $10.25 in Aug06 or down about 73%. I lowered my cost basis by dollar cost averaging in Jul06. The stock then recovered slightly but still ended up down about 41%, yet I ended up with an 14.24% annualized return.