Thursday, January 30, 2020

INTEL Tomorrow's call oppotunity INTC

* The call calculator in this post is on the fritz.  My apologies.  Please use the calculator in the call options page to see results of your individual trade.  Thank you for your patience.

I am a retiree and I can't live on a 1.2% U.S. treasury.  That lament is beginning to be a boring story.

Since my husband retired 20 years ago when a 7% U.S. treasury was common and since I retired 11 years ago when a 4% U.S. treasury was common, we are faced with a booming economy and no income from U.S. treasuries.  Will that change soon?  I think not.  Yet I know that everything will cost more twenty years from now.

My options are options.  Selling covered call options is the income play of this decade.  Until quality corporate bonds or U.S. Treasuries can deliver enough income to live on, we have no choice but to invest in dividend growth stocks with covered call oppotunities.

Tomorrow's consideration is Intel, INTC.

I like Intel because it has broken out and is growing.  Yet, it carries low debt and a low P/E/ ratio.

Let's look at call option potential using closing prices on 1/30/2020.

Stock Price on Open Call Expiration 
INTC $66.47 4/17/2020
Cost Basis:   close on 1/29/20 $66.50
Strike Price: $70.00
Call Premium:  $1.30
Dividend  2/6/2020 $0.330
Call Yield on Basis 1.95%
Call + Dividend Yield on Basis 2.45%
$ Gain if Assigned $5.13
Max Return  if Assigned 7.71%

I like this call because within 79 days which is less than 3 months, I can deposit a 1.955% yield on my principle.  Where else can you get that kind of income in fewer than 90 days?  

Your risk is with this trade is two fold.  INTC could tank for any number of reasons and you would be stuck with a stock worth less than you paid for it.  However, that risk is mitigated by the constant stream of income created by the dividend.   Perhaps the news is so bad that the dividend is reduced or even worse suspended.  The second risk is that you lose your shares to the call buyer.  You only gained 7.7% in less than 90 days but the stock soars and the buyer of your stock made more.  This is called loss of opportunity.  That risk is mitigated by the fact that you have pocketed the call premium and the dividend and the capital gain.  So put that money to work in your next covered call on a dividend stock.   Keep that up until U.S. treasuries pay you 7%.

The problem with blogging about covered calls is the dynamics of the trade.  The price of INTC and it's call derivatives will change constantly.   Use this interactive tool to determine if tomorrow's call activity is worth your attention.

Enter Cost Basis:
Enter Strike Price:
Enter Call Premium:
Enter Dividend if ex-div before Option Expiration:
Call Yield
Total Return Percent if Assigned

INTC is a quality stock that has been stuck in the mud for a while and now it is moving.  With a very reasonable P/E ratio and solid balance sheet, selling calls on INTC tomorrow may just be what you need to pad your checking account.

M* MoneyMadam

Disclosure:  Long INTC with calls

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Wednesday, January 29, 2020

SWKS call potential

Friday, January 31, the final two calls from January expire. I make a living off of selling covered calls on mostly dividend stocks.  In January I had 33 calls on eighteen different stocks expire.

Those calls were sold as long ago as 87 days and recently as 2 weeks.

One of the two calls left is Skyworks, symbol SWKS a 1.5% dividend yielding stock.  My expiration is $119 and my basis on this lot is $110.80.  I received a premium of $1.90. SWKS closed at $117.80 today so I am in the money but below the strike price.  SWKS is volatile enough that I do not know what will happen on Friday.

How would selling a call on SWKS look today.  When it closed on 1/29/20 I looked at calls and here is what I found.  A strike price of $130 well above yesterday's basis; a call premium of $1.20 close to what I want and an expiration date after the next ex-dividend date.

Stock Price on Open Call Expiration 
SWKS $114.94 3/20/2020
Cost Basis:   1/29/2020 $117.89
Strike Price: $130.00
Call Premium:  $1.20
Dividend  2/10/2020 $0.440
Call Yield on Basis 1.02%
Call + Dividend Yield on Basis 1.39%
$ Gain if Assigned $13.75
Max Return  if Assigned 11.66%

In order to determine how to proceed today, I have included an interactive tool. You can enter your data and determine how your trade might work out.  I have put in the data that I used today to decide if I should add SWKS and sell another call.  You can enter your own data and determine if the trade is for you.

Enter Cost Basis:
Enter Strike Price:
Enter Call Premium:
Enter Dividend if ex-div before Option Expiration:
Call Yield
Total Return Percent if Assigned
This tool may not work with all browsers.  You can use the calculator that is  in my call options page.

The example below uses  closing price on both the common stock and on the option on 1/29/20.  Skyworks is ex-dividend 2/10/20 so I would select an expiration date after the ex-dividend date. I like to get at least 1% on my capital from the call premium when I am initiating a new position.  I want at least $1.20 in call premium income.

Strike price is of course important.  When I have an established position, I am more careful about making sure the strike price provides significant capital gains. But with a new position on a stock that is only yielding 1.47%, I can live with bagging only a 5% capital gain should this lot of SWKS be called away.

Every income investor who has to depend on their investments to create the major portion of their income stream should make an effort to learn how to sell covered calls.

I reinforce the need for research.  You want to sell calls on solid stocks that have enough of a catalyst to deliver growth and potential call income.

M* MoneyMadam
Disclosure:  Long SWKS with calls
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MMM immediate 1.68% yield + the quarterly dividend

Bottom fishing or a good investment?  MMM suffered mightily when the market swooned this week.  If you are interested in starting a position and want to get more than just the dividend, consider this call.

I am going to initiate a position today.  Keeping one half of the position allows me to add an over 3% dividend yield with a recent dividend increase of over 5%.   Those two characteristics alone make the trade worthy.

On the other half of my position I will sell the call outlined below.  Expiration is 80 days away and we will just have to see what happens.  Total return on these shares if they are called away (assigned) is less than the usual 10% goal.   However, as an income investor I really like adding to the cash flow from this investment from the call premium.  That income alone yields 1.68%.  The quarterly dividend and call premium together yield 2.56%.  The dividend is due about Feb. 15, 2020 which means you will receive money you can spend within 3 weeks.

Stock Price on Open Call Expiration 
MMM $163.50 4/17/2020
Cost Basis:   1/29/2020 $163.50
Strike Price: $170.00
Call Premium:  $2.75
Dividend  2/15/2020 $1.440
Call Yield on Basis 1.68%
Call + Dividend Yield on Basis 2.56%
$ Gain if Assigned $10.69
Max Return  if Assigned 6.54%

What if you are stuck with MMM after the call expires?  Can you live with a stock with these fundamentals?

MMM $163.66
E.P.S. $8.56
Dividend $5.76
Yield 3.52%
3 Yr Div Growth 9.91%
D/E Ratio 1.89

Consider MMM for your income growth portfolio.

M* MoneyMadam
Long MMM with calls
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Monday, January 27, 2020

Betweem 8.84% and 16.61% return in fewer than 60 days

Giddy - up:   Buying into weakness on four stocks with surprisingly good calls.

Below you will see four covered call tables illustrating the calls I made today on:


This is good income investing in a down market.  Don't put all you eggs in these baskets.  But, nibbling when you can get good call premiums is worth the risk.

M* MoneyMadam

Long NVDA SWKS DOW LVS with calls

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Monday, January 13, 2020

Broadcom 12 % gain in 68 days

AVGO is Broadcom.  A frequent subject of my posts.  I don't like Broadcom's P/E ratio of 47.79 but I love their dividend yield of 4.3%  and their dividend increases.  Moreover, I love the calls associated with this chip maker.

Recent Dividend History:


I executed this call today.  We will have to see what happens.  At a minimum I receive the call income and if I get stuck with AVGO below my cost basis, I have a prodigious dividend growth stock.

M* MoneyMadam
Disclosure:  Long AVGO with calls
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