Monday, October 21, 2019

NVDA and AVGO two calls with different purposes

We income investors are struggling to keep the cash flow up.   Quality dividend stocks are expensive and value stocks have value for reasons that make ordinary investors nervous.

  • No commissions help  you be more creative to work call option income
  • Know your income goals and be flexible with strike prices and expiration dates
  • Stick with stocks that have good fundamentals but don't eliminate a stock just because it is not perfect

We have to employ our cash to earn income and hold our noses when all the numbers are not perfect.

Below are two calls, both executed today.  They are designed to deliver income yet each is quite different from the other.  One call expires in 12 days and the other call in 89 days.

AVGO - Broadcom


I own Broadcom and sell calls as often as I can.  Broadcom is not perfect.  The D/E (debt to equity ratio) is higher than other chip stocks such as Intel.  AVGO D/E = 1.75 whereas INTC carries a D/E of only .38 and Skyworks (SWKS) has no debt.

Moreover, AVGO has earnings per share slightly less than the dividend payout.  However, their cash flow per share is more than double their dividend.  EPS = $7.42, Cash Flow = $23.39 with dividend payout of $ 10.60.

I am putting more money to work in Broadcom and selling a call designed to deliver at least 10% in capital gain should the call be assigned (the call buyer actually buys my shares at the strike price.)  Another goal for this call is to received call premium greater than the quarter dividend.  Finally, I picked a strike price that captures the dividend provided the call buyer does not take my shares before the ex-dividend date.

One of the biggest benefits from owning Broadcom is the prodigious dividend growth.  Over the past 3 years the quarterly dividend increased from $ .51 to $2.65.   When you realize that your expenses will double in 20 years and if you expect to live for 20 more years,  you need your income to grow.  Broadcom, in my opinion is worth the risk.

See the two tables below:


AVGO Dividend Machine Fundamentals










AVGO January Covered Call Option


















NVDA - Nvidia


I also own Nvidia and I added a little today.  With this stock I am looking to cash a nice check quickly.   I have less interest in holding NVDA for the long haul because the dividend is low and their dividend increases are adequate but nothing like AVGO.

I am risking new capital but for only 12 days.  I picked a call that will deliver more in the premium than I can get in dividends when holding the stock for an entire year.   The risk is that NVDA is very volatile (52 weeks price range is between $124.46 and $235.32;  this means NVDA could be worth less than what I paid in just 12 days.




I picked a strike price that is very close to my cost  basis.   I get a little gain and I get to pocket a juicy call premium.  And the entire commitment is only 12 days.

Risk is an interesting issue.  Look at NVDA's fundamentals below and you can see that the share price may be volatile and prone to headline news and trade tweets, but NVDA has a solid balance sheet and cash flow that far exceeds dividend paid out.  I think 12 days of risk is ok.  Let's see what happens.

See the two tables below:


NVDA Dividend Machine Fundamentals










NVDA November Covered Call Option



















It is not easy to work your portfolio in this stock market environment.  No commissions helps me be more creative.  Know what your goals are so when you do execute your trades, you are confident your income goals can be realized.   When your proceeds are not eroded by costs, you can do a little more active call selling.

M* MoneyMadam

Disclosure:  Long NVDA and AVGO with calls