We have just completed the fifth month of this model portfolio. A summary of the income we have received to date in shown in the table below (click to enlarge).

Income Tracker as at 31 August 2012 – Click on image to enlarge

In August, the put options that we sold earlier on WOW expired OTM so we simply got to keep the option premium without having to buy any shares. We also sold calls over our RIO shares when the shares rallied up to an area of resistance. The rally was quickly retraced and our call options became almost worthless so we closed them early so we can sell more calls over RIO. We also made future commitments to buy Westfield shares at $10 by selling put option contracts. We received a total of $1,685 in premiums for the option contracts that we sold this month.

Our RIO and TLS shares went ex-dividend in August. We can expect to collect another $2089.36 of dividend income (incl franking credits) in September.

The interest rate of our Cash Investment account remained at 4.00% in August. At the end of the month, we would have received interest of $234.28 for our remaining $71,260 of cash, giving us a total income of $1919.28 or a 0.96% return this month on our capital of $200,000.

Our target return for this model portfolio is 15% per year in income received (see Model Portfolio Set Up). So far, our return is 7.44% in the last 5 months. We have not factored in brokerage and fees in our income tracker and after deducting the expenses, we are still on track to achieving our target return of 15% per year.

As the market value of some of our shares is below what we bought them for, we have some unrealised capital loss in our share portfolio. As at 31 August, our unrealised loss is $8,298 or 4.15% of our total capital of $200,000 as shown in the table below.

Open stock positions as at 31 August 2012 – Click on image to enlarge

Unlike last month, I have put in the market value on all shares, including the ones for which we have sold covered calls on ( NAB, TLS,  and NCM) which actually caps the capital gains for these shares to the strike price of the calls we sold. This is because we will start rolling our calls up using the Delta Strategy which has been proven to be an effective covered call strategy in a recently published ASX Research paper on covered call returns. In the past we would not have been able to use this strategy as we were unable get the Delta of each option from the ASX or our broker platform. However, we can now get this information from our new Halifax TWS platform as shown in the option chain below. I will explain more about the Delta Strategy and other covered call strategies mentioned in that paper in another blog post. If you wish to read this research paper yourself, check our Resources page which has a link to this research paper.

Source: Halifax Trader Work Station

I will be providing weekly and monthly updates on this model portfolio on this blog. If you are intrigued by our income strategy but have trouble following the discussions in this post, you will need to first download and read our e-book in order to understand the strategy and do some basic options education (found on our Resources page) to familiarise yourself with option terminology.

Stay tuned!

Disclaimer: This post is for educational purposes only and should not be treated as investment advice. This strategy would not be suitable for stock investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek investment advice if required.

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