Tuesday, May 10, 2011

Option income Boeing, symbol BA; Caterpillar symbol CAT; and CSX symbol CSX

                Boy is it hard for a girl to make money in this market on dividend machines alone.  You may have noticed that everybody and his brother have been touting dividend machines and pushing their prices higher and higher.  Income investors like me and you need more income than just dividends.  That investment income is generated by bonds or covered call options.  Bonds are still too expensive.  I have been looking but I have not yet found a bond I want to buy.   Therefore, I am looking at covered call income.

Recently, several of my stops were hit.  When I double my money, I fell so terrible to lose that gain so I set stops and they almost always get hit.  In other words, I raised cash and I need to put that to work.  Here are three trades I made today.  Each company is already in my portfolio.  My cost basis is a lot less than today's price; however, I still like the fundamentals of each company.

I bought Boeing, symbol BA at $79.89 and sold a covered call for income of $1.24 per share.  The call date is August 20 of this year and the strike price is $87.50.  I will receive a $.42 dividend in June.  I hope that in August BA is well above $80.  That will result in an 11.6% gain.  Find a dividend machine with that potential income! 

My next trade was CSX, the railroad which I bought at $78.82.  I sold an August 87.50 call for $1.17. I will receive a $.36 dividend in June.  If CSX is greater than $87.50 in August and the buyer of this call takes my CSX, my gain will be 13.06%.

My last trade today to generate option income was Caterpillar, symbol CAT.  I bought CAT at $112.42, sold the August $125 call for income of $2.01.  Cat will pay a $.44 dividend on the same date as the call expires.  If I get the capital gain from the call buyer before the dividend is paid, my gain is 12.97% and if I receive the capital gain and the dividend, my gain is 13.37%. 

If I end up holding all three companies I feel comfortable knowing that I will continue to receive dividends; I may have a chance to write more covered calls for income; and I have added to three very solid positions in my portfolio.  At least my cash will be making more than the money market pays.  BA sports a high flying dividend of 2.1%; CSX’s dividend yield rolls in at .94% and CAT’s dividend yield is 1.55%

I look quite frequently for these types of trades and am often disappointed.  Today was a good day.  I made money and hope you did too.

Very Truly Yours,
Enhanced by Zemanta