Wednesday, October 14, 2015

WMT 65 days of income

This would have been a nice trade today.   

Buy WMT @ $60 

I cannot include WMT in my 2015 Dividend Machine model portfolio because the yield is still too low and that would mess up my study.   I can buy it for income for myself since I do not have to stick with my Dividend Machine Criteria. I consider this buy to be with minimal risk.  Take a look at the dividend machine fundamentals.  WMT may not be a dividend machine today but it has some good stuff going for it.  Plus, this is a short term Christmas trade.

Sell Dec.$62.50 covered call to receive $1.15

My plan is to take advantage of the Christmas season.   In WMT's earnings call they suggested the Christmas Season should be o.k.   I see cranes at building sites; I see help wanted signs all over the place to prepare for "the season."  I hear from retailers that they are busy and believe me, all airplane seats a filled.   These things suggest to me that I could sell a call on WMT that will deliver an immediate source of income from the covered call premium.

Tomorrow may not provide the best call income, but as we get closer to the Christmas season, you may (or may not) find a call with even more income.   If you were facile enough to do this today, you could have received $1.15 for a Dec. 18, 2015 $62.50 call.

Own it on Dec. 5 and receive $.49 Dividend

I selected a December 18 expiration which is 65 days away because I wanted to receive the dividend.  I actually think that WMT has a good chance of being at or above $62.50 on December 18 and my stock will be called away.  I may be unlucky and have it called away before the ex-dividend date of December 5.   Should that happen I get only the 6.08%.   However, I have been around this block before and I think I will get all three:  the call premium, the capital gain from my stock being called away, and the dividend.

Result Potential

The call expires on December 18.  If your WMT stock is not called away you will own a stock that pays 3.26% on your basis.   You may have a capital loss or gain or be even.  But you will own a stock that has increased the dividend 12.4% on average over the past five years.  This is a risk that I am willing to take.

If you have the where with all to buy more than 200 shares or more, you could consider selling calls on one half of your position and hold the rest to see what happens.


Disclosure:  Long WMT with calls

October 15, 2015 10:36 AM Eastern:  Here is how the call worked out today at least on 1 contract.