Thursday, October 11, 2018

Home Depot debt makes me sell calls

Those who read my blog know I am always worried about balance sheet strength.  I don't care why a company has more debt than usual, then their peers, it makes me nervous.  Moreover, in this rising rate environment, I get even more nervous.

I hear that Home Depot (HD) took on debt to finance stock repurchase and that makes it o.k.  I go to their stores and see the crowds shoving their credit cards into the self check out and I am amazed.  Since there is little entry level housing available, it makes sense people are fixing up their abodes.

So here is my typical strategy. Milk HD for income.  I like their dividend and other's enthusiasm, so I am selling December $210 calls.  Even if I bought today it would be a good trade for call and dividend income because I picked an expiration date that would capture the dividend if, like most calls, this option expires without action. 

My basis over time is around $148.   I am willing to take a risk and lose HD if I don't lose it, I will either sell it or sell more calls.  It all depends on how their fundamentals look after the December expiration.  

The table below presents the details of this call.

Work your portfolio no matter what the broader market does.   Opportunity is there for your taking.

M* MoneyMadam
Disclosure:  Long HD with calls