Monday, May 2, 2022

If I could just get back my basis? You need depth Example BBY

Underlying Security Symbol: BBY

 

When the market is under pressure, investors get worried and that is appropriate.  Will the market ever recover?  Should I sell?  How many times do you say to yourself, "if I could just be back my basis." 

Today is the beginning of May and earlier in the trading session, the market was up.  I took a look at the calls I have expiring in May and I found 41 calls on 23 names.  Clearly I have multiple calls on several stocks and that is by design.   If you want to create call income but you want to protect your basis, you need depth.  You need to nibble when the price on one or more of your favorite stocks goes down.

Having a strategy is critical.  Income investors still need to sell calls to create income because interest rates are not yet high enough to switch from stocks to bonds.  By the way, I never, ever, buy bond funds.  I buy only individual bonds.  But we will cover that subject when I find a bond that is worth buying and posting about.

Today, I sold 5 calls on 5 separate stocks.  My thoughts were to get back my basis on specific lots.  While I am underwater on many buys during the "buy high; sell higher" phase earlier this year.  I sold calls on these high buys.  But, I still have shares that I accumulated during stretches of weakness and because I am skeptical of the headwinds the markets face, I would like to get back my basis and still make income.

BBY, Best Buy, was my favorite call today.  I have a full lot of shares with an average basis of $95. BBY was trading at $92.37 at the time.  I sold a July 15 call on this lot.  I picked July 15 because it pays a better premium than June calls and it captures the dividend of $.88.  I could have sold a $95 call and if it is called away, I would get my basis back.  I find no fault with that.  I decided to go for a modest capital gain and I chose a strike price of $100.  I received $4.19 for this call.  Both calls are exhibited below.

$100 Strike



 

 

 


 

 

 

 

 

 

 

$95 Strike


 

 

 

 

 

 

 

 

 

 

 

 

For those of you who argue that I am still underwater on BBY, you are correct.  But I still like the stock which is why I picked a $100 strike price. The dividend yield of 3.78% and a P/E of 9 are solid fundamentals that I can live with.  I am particularly impressed by the dividend growth.  Most recent increase was 25%.  This stock so far has been a dividend machine for me.

Consider creating depth in your favorite stocks by adding on weakness.  Hold enough shares that you have some available every month on which to sell calls.  Do you homework and even if your shares are underwater in price, you should still be getting paid the dividend.  By the way, in addition to selling 5 calls today, I nibbled on a few positions to set up the next call cycle. Income investing is not a passive adventure, it is an active process.

MM MoneyMadam 

Data from Schwab.com and Marketxls

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