Thursday, August 16, 2018

Conoco Phillips symbol COP short term call

I did execute a trade on COP yesterday, Wednesday Aug 15.  I added to my position at $68.10 net.   I have mixed feelings about COP.

I am not really worried that the stock will go belly up.  Their balance sheet is solid.  My readers know I use debt to equity ratio as my first balance sheet screen.   COP carries is a D/E ratio of .45 which is solid.   But COP's dividend yield of just over 1.5% is less than I need.  On the other hand that dividend is growing which an income investor like me needs.  

I own quite a bit of COP and here is how I work it.  First I reinvest the dividend.  Next, I add to my position on weakness.  COP has a history of some volatility.

Source Schwab.com

Then I sell short term calls to try to capture more than 5% in potential gain within 30 days.   These parameters are not set in stone.

A short term call to me is an expiration date 30 days out.  My typical long term call expirations go past the next ex-dividend date but not much more than 90 - 100 days.  I have done calls with expirations dates as short as 4 days.  That is more common on a stock that I think I can make money from the call but don't really want to establish a long term position in the stock because it is not a dividend payer or grower.  An example would be Twitter.  If you click on the 2018 covered call trades portfolio you will see the TWTR trade. 

COP is a quality stock and I can suffer through holding it should the price of my shares fall below the call strike price or even below my cost basis.

Here is the call I executed today on COP.




















Notice that I will add just over 1% of yield on this stock.  So if I end up holding this lot, I will make the dividend of just over 1.5% and the premium from this call of 1.13% so now I am inching toward my desired income of 5% on my stocks.    With these short term calls, you can sell them over and over if you are lucky.

Now, if this lot of COP is called away, my max gain will be 7.59%.  I can live with that kind of return in just over a month.  This is how you work your portfolio.


M*  MoneyMadam
Disclosure:  Long COP with calls

Stocks on sale

Put in no fewer than 10 trades yesterday but got only one, COP.  Going to sell calls on that trade.  Looking for a short duration trade maybe August 24 with a max gain of 6%.  If it works I will post the trade.

M* MoneyMadam

Monday, July 23, 2018

Friday, July 20 was options expiration day.  Ten percent of my calls were exercised the remainder expired which is exactly the expected outcome.

I am tracking a separate, small portfolio of stocks on which I sell calls.  Below is an updated picture.  Four Nucor (NUE) $67.50 calls expired on Friday.  I look forward to working this wonderful income stock.

In August, we have one AAPL $200 call.  In September, we have two QCOM $65 calls and one GILD $80 call.







The $68,222 portfolio has delivered one nice capital gain as well as recurring dividends and call income.  Except for Twitter, which was called away for the capital gain of 8.6% in a week, and my bi loser RIOT, the other stocks have provided multiple call option income and dividend income.   The loser of the group is RIOT.  I will hold it until I can sell appropriate calls.  Current yield on this portfolio is just over 7%.

This portfolio is a small example of how to work dividends, momentum, and calls to enhance your investment income.


M* MoneyMadam

disclosure:  Long all positions with calls as noted.

Monday, July 9, 2018

GILD - Laddered calls

Gilead Pharmaceuticals has been the subject of many posts in this blog because it is a very good Dividend Machine stock.  The best Dividend Machine stocks deliver dividends, dividend increases, and provide covered call opportunities.


  • The best Dividend Machines deliver increasing dividends plus call opportunities
  • Covered calls limit upside potential
  • Laddered call expirations and strike prices provide for some upside opportunity
  • Covered calls do nothing to limit downside risk
  • Covered calls on dividend stocks can provide 5% and more for income investors
  • Conservative income investors will make sure the underlying stock like GILD has solid fundamentals as well as a history of dividend increases.

Listed below are three calls I sold on some of the GILD in one of the retirement portfolio accounts I manage.   You have all read about selling calls in a retirement portfolio.  The strategy is considered a safe one.  Even the series 7 exam (required to be a stock broker) has many questions on this strategy. If you are about to take that test and the question asks if covered calls are appropriate for retirees, the answer is yes.

Laddering calls, like laddering bonds, means you spread out the expiration dates and the strike prices.  This way you can work the upside potential at the same time as working for income.

Covered calls do limit upside potential.  


When you have a growth stock with call option opportunity, you can often times get very large premiums.  Yet, those very stocks can soar and you feel like an idiot missing out on the opportunity.  But we are income investors and just take those gains and plow them into another stock, preferably one with a solid dividend.

Laddering the expiration dates and strike prices can help capture some of the upside potential.  I still like to make sure the lowered strike price generates an 8 to 10% capital gain should my shares be called away.

Covered calls also do nothing to protect you from down side risk.  


You would have to buy a put option for  protection.   I very rarely buy puts to protect a position and almost never on an income stock.  I would rather just get rid of a loser and not pay anyone to do that.

You see, when you sell calls on your shares, you cannot sell your shares should the stock price crater and therefore, you are stuck with the holding until the call expires.

Therefore, for very conservative income investors who like me have to make 5% or more selling calls on good dividend stock is the safer of all the moves.   Dividend Machines can soar at times and act like growth stocks.  

Interestingly, in the Wall Street Journal today, I read about the fact that growth stocks and value stocks have similar betas.  WSJ Link:  https://www.wsj.com/articles/value-stocks-may-not-be-the-bear-market-cure-after-all-1531102200?mod=searchresults&page=1&pos=1


If you need a review of beta here is a resource:  From Investopedia


A beta of 1 indicates that the security's price moves with the market. A beta of less than 1 means that the security is theoretically less volatile than the market. A beta of greater than 1 indicates that the security's price is theoretically more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market. Conversely, if an ETF's beta is 0.65, it is theoretically 35% less volatile than the market. Therefore, the fund's excess return is expected to underperform the benchmark by 35% in up markets and outperform by 35% during down markets.


Read more: Beta https://www.investopedia.com/terms/b/beta.asp#ixzz5Km7Igabr
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Laddering Calls to capture the dividend, call premiums and increasing capital gain potential


Three laddered calls are illustrated below:







Select a stock with good fundamentals.


Gilead is in between it's 52 week high of $89.54 and low of $64.27.  Today it is trading at $76.67.  My average basis is $73.98.   GILD pays a quarterly dividend of $.57 for an annual yield of 2.97%.
Their most recent dividend increase, two quarters ago, was 9.6%.  Average dividend increase over the past three years has been 10.85%.   Folks this is a lovely income machine.  Just on these actions, I get the 3% dividend and a total of 4.31% call premiums.   Now I can rest for the day.

Each of these calls has an expiration date that provided for capture of the dividend as well as the call premium.

I won't like losing GILD if it soars but I am not committing all my shares to the calls.  I am simply using these laddered calls to render GILD a 5% producer at a minimum.

M* MoneyMadam
Disclosure: long GILD with calls

Monday, June 25, 2018

Intel worries

Intel has been part of my life for a long time.  Their company culture was always top line.  While they face technology challenges with their new chips, I am not worried that INTC will go out of business.  However, the stock has had a nice run and the summer doldrums are here.

However, as an income investor INTC's dividend of just over 2.3% is not exactly compelling.  Before the news of Krzanich's resignation, I added to INTC on what I thought was weakness.  June 21, I bought 128 shares at $52.25.    I reinvest INTC's dividend and I wanted to fill out a "lot" so that I could sell calls on 2 lots.  

While it seems counter-intuitive to sell calls when the market is selling off (right now the DOW is down over 400 points,) I wan to try to get my money back on that most recent buy.

INTC is selling just above $50 today.  I am selling a call on the reinvested shares and the 128 shares I added.  This means I sold 2 contracts.

I selected an expiration date after the next expected ex-dividend date of August 3, 2018.  The best call I could find was  $52.50 strike, with an expiration on 8/17/2018 and a premium of $1.42.  The table below shows how it worked out.



I don't really want to unload all my INTC.  My cost basis on my other shares is under $20.  If I have to keep the 200 shares with a cost basis of about $52, I will be getting the dividend.  If they take my shares, I got a quick 3.77% gain in under a month.   I can live with that.

M* MoneyMadam
Disclosure:  Long INTC with calls

Sunday, June 24, 2018

2018 Call Portfolio


In 2018 I am tracking a portfolio that is designed to deliver income mostly through call options.

It is a limited portfolio with a basis of just over $68,000.

This $68,000 has already created over $4,000 of income.   I like this kind of income.




This is not a growth portfolio and the stock price of the stocks is almost irrelevant.  I made a big mistake buying RIOT.  I have been able to sell a couple of calls on it.  I don't sell holdings in this portfolio especially at such a loss so I am holding my mistake RIOT.

GILD is underwater but I am collecting a nice dividend and have sold one call.  I look everyday for the next call.  My strike price on GILD will not be lower than my basis.

Today I sold calls on the 200 shares of QCOM.  I need to keep working this limited portfolio and I will post my trades as they are executed.


2018 CALL PORTFOLIO TABLE







I always tell people, you can really only expect to generate about 5% pure income for spending on a retirement portfolio.   However, if you can master using covered calls, this portfolio proves that more income is possible.  Over 7% in yield so far.


M* MoneyMadam
Disclosure:  Long all positions with the calls noted