Tuesday, March 13, 2018

Breaking all my rules with these trades

I want to increase the cash flow from my portfolio. To increase cash flow, covered calls are a technique used by many portfolio managers.  Covered calls are the only options I sell and the only options I write about in this blog.  I decided to employ some of the capital in a Conversion Roth IRA and I decided to take more risk than in my dividend growth portfolio.

  • Short expiration dates with high premiums
  • Continue to sell calls even on stocks that are underwater
  • Exit strategy for dividend paying stocks is to have them assigned.

Let's take a look at the stocks I bought so far and the income generated.  I am not concentrating on growth companies or value companies.  I am looking for stocks with vigorous calls.   Although I expected to roll the calls quickly using expiration dates not far out.  However, I have deviated even from that idea with at least one stock and that is call I sold on RIOT a very speculative block chain stock.  

QCOM:  Qualcomm

Qualcomm was the first stock I bought at $64.87.  The $70 call on QCOM which paid me $1.25 will expire this Friday 3/16/2018.  Based on how QCOM is trading with the news that their being acquired by Broadcom is dead QCOM is below my cost basis.  Therefore, I expect the call to expire.   I will immediately  begin looking for another call next week.

QCOM has the advantage of providing a nice dividend. My cost basis is $ 63.12 when including the call premium and the dividend.  I do not have an exit strategy on QCOM and I am hoping to work the calls to yield significant income.  

NUE:  Nucor

I invested a lot of money in Nucor: 400 shares at $66.60.  I sold a February $70 call and received $1.35. The call expired and I immediately sold a $72.50 call on all shares with an expiration date of April 20, 2018.  Like QCOM, Nucor pays a dividend which I should get provided my shares are not called away prior to 3/28/2018.  My cost basis is now $63.82.

Again, I do not have an exit strategy on NUE, I will continue to sell near the money calls with short duration expirations and high premiums.

RIOT: Riot Blockchain

RIOT is a total departure from my typical strategy.  I bought this stock at $21.08.   My first call yielded quite a nice income of over 10%.  But the stock has crashed and burned.  My first call expired and I immediately sold another call but had to go out to June to get a decent premium of $1.00.    Right now my cost basis is $21.08 less the income of $3.25 or $17.83.

RIOT could go belly up by then, it could also easily go up enough that my stock is assigned at $12.00 and I would have lost $5.83 or 32.679%.  My exit strategy is to have this stock assigned or have it go belly up.

AAPL:  Apple

And then I invested in AAPL at $176.98.  My first call for a strike price of $195  expires on April 20, 2018.  I received a call premium of $2.25 and the dividend of $.63 making my basis $174.15.  Today Apple is trading at about $181.30 so I am in the money but not yet at risk of having my shares called away.   AAPL's all time high is $183.50.

Like every stock that pays a dividend, my exit strategy is to have this stock called away at some point while I sell calls as often as I can at the highest premium possible.

TWTR: Twitter

This trade is more emblematic of what I want to do in this account.   I bought TWTR at $25.91 and sold a call with an expiration of just 4 days away.  I received $1.15 for the call.  It was exercised at $27.   My income on this stock is 8.64% in just four days.  

Twitter is also an example of how selling covered calls limits upside potential.  Today TWTR is trading at $34.185.   You could buy TWTR today and sell a call 31 days out (4/13/2018) at a strike of $36 for a premium of $1.10.   Not as compelling as the four day call.

I am going to bank my money from Twitter and use it to fund my next buy.

GILD:  Gilead

And that next buy was Gilead at $79.99.  I sold a May $87.50 call for $1.10 and I should receive the dividend of $.57.  Like the other dividend stocks, I do not have an exit strategy other than having this stock called away.  

Gilead's high is $123.37 and I just may have my shares assigned.  If so I make 11.72% in a very short time frame.   If my call expires, I will continue to sell calls.

The Table below presents all the information on these trades.

I currently have $62,822 working and my yield so far this year is 4.51%.  As with all my portfolios, I will report on the results no matter what the outcome.  I write up these ideas so I can learn, as I hope my readers learn, what works and what does not.

M* MoneyMadam

Long: all stocks in the table with calls.