Showing posts with label AA. Show all posts
Showing posts with label AA. Show all posts

Thursday, March 31, 2022

Best Options YTD - quarterly review

Underlying Security Symbol: QCOM, NUE, AA, BBY, AAPL, DOW, PSX


The quarter ends today and I looked at the calls I wrote year to date.  I'm interested in looking at which stocks created the most income from call premiums during the quarter.  As my premise that concentrating your holdings provides for more opportunity to create income and yet maintain a position in those stocks around which you want to build your income portfolio

I sold 140 calls year to date.  I sold them on 25 different stocks.  I created $33,000 of call premium income.  24% of that income came from just two stocks and the next 20% came from three additional stocks.  The chart below shows the number of calls per stock but I parsed the data to include only those stocks on which I sold 3 or more calls.








The first of the two stocks that created the most call option income is QCOM.  Qualcomm is a chip maker and is doing poorly from a capital gains point.  It pays a 1.72% dividend yield.  Even though chip makers are under pressure, I have been able to sell calls, and although a few have been assigned, I continue to maintain a significant position on which I intend to continue to sell calls.

The second of the two stocks, is NUE. Nucor is a steel company.  It is doing very well and pays a .87% dividend yield.  As an income investor, I need NUE to create significant call premium income; otherwise I am wasting a chunk of money that could be creating more income.  NUE has been more active than QCOM, many contracts have been assigned and I have had to add to maintain a position.  Due to the demand for steel, I will stick with this holding as long as the calls are good.

The next three stocks are AA,  AAPL, and BBY.  Like Qualcomm, and Nucor, Alcoa and Apple pay paltry dividends but Best Buy pays a better yield just above 2%.  

The chart below shows the income per stock on those positions where I sold 3 or more calls.








Five stocks are high dividend yielders.  These are:  IBM 4.97%, GILD 4.72%, MDC 4.6%, PSX 4.36% and DOW 4.36%.   IBM, Gilead and MDC are dead money so being able to boost income above and beyond the dividend is important to me.  Each of these three has a chance to deliver capital gains. We get paid nicely to wait which makes them a hold for me. 

PSX and DOW are true winners.  The catalyst for their growth is energy for PSX and chemicals for DOW.  All are in demand right now.  PSX and DOW are a strong hold for me and I may accumulate to make sure I maintain a position while still boosting my income from call premiums.

It is notable that the concentration of call frequency and call income does not seem to correlate to dividend yield.  I do think this assessment confirms my thesis that having multiple options on a single position is valuable.  Better to sell calls on 20 or 25 stocks than one call on 80 stocks.

Use covered calls to boost your income.  MoneyMadam MM

Data from and Marketxls

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Monday, March 28, 2022

Alcoa 7% on a 12 day turn around My favorite call today

Underlying Security Symbol:AA 


Certain stocks just command high options premiums. WHR has been such a nice run and QCOM is always giving back. Alcoa, symbol AA is in the category of money machine but it's not a DIVIDEND MACHINE.

I am basically chasing Alcoa. I buy and it goes higher. I sell a call and the shares are assigned. The dividend yield is not big enough or of enough duration that I want to hold AA as one of my Dividend Machines. So I work it for call income. 

  •  Dividend Yield .43%
  • October 2021 first dividend since 2016
  • P.E. ratio very high at 42
  • D/E ratio very safe at .37
  • Revenue growth but AA is building investing in its business so Earnings lag

The above fundamentals reinforce the use of my using this chunk of money to create income not build a portfolio around AA. I want to keep the risk as low as possible and therefore, I am picking calls with big premiums, short durations, and strike prices highly likely to be assigned. In this case, I picked a $95 strike and an April 14, 2022 expiration for a premium of $2.65. 












This is a 12 day call.  I am hoping AA will reach the $95 mark and my shares are taken and I can book the whole 6.96%.  If not, I will keep the $2.65 premium and decide what to do with the shares at that time.

These short term calls do fill the coffers.

MM MoneyMadam 

Data from and Marketxls

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Friday, February 25, 2022

ALCOA for a 20% Return

Underlying Security Symbol: AA


Alcoa is in that asset class that is hot right now.  Steel, hard metals, and aluminum are trading briskly. Alcoa just restarted their dividend and announced the second quarterly dividend of a whopping ten cents.  You can see I am not adding AA for the dividend.  I am adding it because I like the asset class, I like the fundamentals and I really like the calls.

YOY revenue and income growth and a D/E ratio of .37 and the fundamentals I like.   The hair on this holding is the P/E ratio which is 33.  That is high for me but this is the rare case where I have made so much money on this momentum stock that I am sticking my foot back in the water.  I will have several calls assigned in the next few weeks.  Each call that I expect to be assigned has been a money maker. I am hoping this call will be assigned as well.

I added today and sold this call.











Good income investing.  Stay diversified. Add on weakness.  Pay attention to asset classes.  That's all there is to it.  MM MoneyMadam

Data from and Marketxls

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Friday, January 28, 2022

Alcoa AA is back and I am selling calls.

Underlying Security Symbol: AA

I cannot begin to list all the options I looked at today.  Although the market is squirrelly, I have been able to "make a living" this week by selling a few calls.  Last Friday, options expiration for the month of January, was good to me.  I had 26 symbols with call expirations on 1/21/22 with nine being assigned.  That created cash and I put some of that cash to work this week.

I nibbled at a few stocks mostly to fill out a complete lot so that I could sell calls on that lot.  These included CNQ, ORCL, NUE, and AAPL.  But none of those stocks passed muster to add another full lot on which to sell calls.  I started a position in COP and immediately sold a call on that.  

Today I started looking at higher dividend yielding stocks (more than 2.5%) and tried to find stocks with low P/E ratios and good call premiums. 

I looked at GILD, QCOM, BBY, MS, PFE, JPM, WHR, and NEM.   Some of the call premiums looked good but on closer inspection I decided not to add to those names.

What I did add today is Alcoa, symbol AA.  Alcoa is back.  It has cleaned up the balance sheet and is posting very good revenue and income growth.  It is buying back some shares and has instituted a quarterly dividend.  Alcoa is a play on the inflation issues facing all investors.  Take a look at their fundamental trends:

Source:  MSN Money


I bought more AA and sold this call:

The hair on this trade is Alcoa's P/E ratio which is about 25.  This is high for me.  Let's just see what happens.  


Data from and Marketxls MM MoneyMadam
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Monday, March 28, 2016

Four Bonds for your consideration

Tuesday, March 29 update:   I did buy the Boise Cascade bond at par but in order to obtain a competitive bid minimum number of bonds is 50.

Original Post:

In this post I discuss four bonds for the average income investor to consider.

Interest rates are tough to predict.  Far smarter people than I have made fools of themselves trying to predict interest rates.  As you know bond values vary as interest rates vary.  When interest rates go up the value of a bond goes down and vice versa.  Provided that you buy your bonds at par or less, and hold them to maturity, these price variations are insignificant.

If you trade bonds, opportunities are abundant when interest rates are volatile, but we income investors do not trade bonds.  We invest in bonds to diversify our portfolio with an income instrument that is highly likely to deliver a steady source of income from interest and return our principle when the bond matures.  If you are a savvy bond investor you might even secure a capital gain if you bought your bond at a discount to par and receive par upon maturity or redemption.

Morningstar manages the bond data for Financial Industry Regulatory Authority (FINRA.)  I use their site to search for bonds and then I look to my broker, I use Charles Schwab, to actually find the bond's availability and trading price.

Bonds differ from stocks in that they are not as liquid.  You do not have a platform where you can place a limit order on a website and check in at the end of the day.  You need to have all your data at hand and make your decision to buy at the time the order is placed.  Schwab allows some bonds to be traded through their website but not all.  A call to the bond desk can provide better access to an acceptable trade.

Bonds also differ from stocks as you receive interest income for every day you own a bond.  Whereas with a dividend stock, you must own it on the ex-dividend date to receive the dividend.  You receive no income if you sell the stock prior to the ex-dividend date.
Interest Coverage Ratio

I have discussed D/E (debt to equity ratio) many times over the past years.  I have not discussed interest coverage ratio as much.   Interest coverage ratio is calculated by dividing EBIT which is earnings before interest and taxes by interest expense.   You can find this ratio already calculated for you on several websites but you can also go to the financial statements and find the data so that you can calculate it yourself. 

Interest coverage ratios of greater than 2 are what you want.

Four Interesting Bonds

ADT Corp, symbol ADT, has a bond that matures in 2023.  Alcoa, symbol AA, has a bond that matures in 2024. Boise Cascade, symbol BCC, has a bond that matures in 2020 and Embraer, symbol ERJ, has a bond that matures in 2022. 

I like to ladder my bonds by maturity.  The table below presents these bonds by maturity.  It includes the coupon, recent price, and yield to maturity.  Laddering takes some of the interest rate risk out of the equation.   These four bonds mature in 4 to 8 years.  Interest rates could be exactly the same or much higher in 8 years.    Although I would get my money back at maturity, I might have lost income opportunity if a 5 year U.S. Treasury is paying 6%.

A U.S. Treasury bond is safer than any of the four bonds profiled here.  So I would not want to commit my money for much more than 5-7 years.

The Table below lists these four bonds by maturity.

Issuer Fundamentals

A bond is only as good as the company that backs it.  I look for a stock with earnings, reasonable D/E ratio (debt to equity ratio), and decent interest coverage ratio.

The next table presents the issuer fundamentals including the CUSIP number for each of the bonds I may buy this week.

Further Discussion

ADT Corp. (ADT) has a thriving business.  They have earnings, pay a dividend and have revenues that are increasing; all good metrics.   However, their debt load is a bit heavy and that will way on my decision. 

Alcoa (AA) is in an industry that is under enormous pressure right now.  Although if you just look at D/E ratio, MSN Money ranks their D/E ratio at .75.   One of the peculiarities of their financial reporting is an interest coverage ratio of 1.5.  This is hard to believe as they had negative EPS during their latest quarter.  Looking back further earnings are all over the place.  Will commodity stocks like Alcoa come back?  Probably but the buyer of their bonds must understand there is risk and that is why the bond is trading at a discount.

Boise Cascade (BCC)  is the most solid of the stocks noted here.  Boise has solid revenue growth and reasonably good earnings although their most recent quarter showed some erosion in earnings.  The stock has a solid D/E ratio of .64 and interest coverage ratio of 4.58.  This is why BCC is trading right around par.   This is my favorite bond here, provided I can buy it at par or less. 

Embraer (ERJ) is a Brazilian company that trades in the US and follows most of our accounting rules.  D/E ratio of Embraer according to MSN Money is .94 which is respectable for a stock that requires a lot of capital.  Interest coverage ratio is hard to measure as their financials show no interest payments.   These facts may be suspicious and therefore I will probably not buy the Embraer bond unless I can get it at a significant discount. 

Consider one or more of these bonds for the income producing portion of your porftolio.

M* TheMoneyMadam

Disclosure:  May buy the ADT, AA, or BCC bond this week.

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Sunday, May 4, 2014

Selling Alcoa Bond

Alcoa (Photo credit: Wikipedia)
I am often asked to write about stocks that I sell.   I don't sell any stocks in the model portfolios I follow on this web/blog, and I rarely sell stocks in my own portfolio.    This post is to inform you that I am going to sell the Alcoa Bond I profiled last year.    Here is
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Monday, June 24, 2013

BONDS; Alcoa bond for your retirement

Alcoa (Photo credit: Wikipedia)

You know I never advocate bond funds, yet, often times individual bonds fit nicely into an income investor’s diversified portfolio.   In this post, I profile a bond I bought yesterday. 

I want to remind you that I like bonds with short maturities, that cost less than par, have an interest rate that is better than a dividend, and whose underlying company has a good interest coverage ratio.  

Bonds with short maturities:

When you buy bonds, your goal is to build a portfolio of bonds with varying maturities.  Long bonds, those that mature in more than ten years, cost too much and do not pay enough income to make such a commitment.  You tie up your principle for too long a time. 

Short maturities, those between three and then years, are the sweet spot of bond investing today.  Everyone is worried that interest rates will explode over the next few years.   If that comes true, the value of bonds that you buy with coupon yields that are less than government treasuries will go down.   You will not want to sell your bond at a discount so you should hold it to maturity when you will get back your principle.   You can then reinvest your principle in another bond with a higher coupon yield.    If you keep the maturities short, you tie up your principle for less time and you can take advantage of rising interest rates.

Bonds priced at less than par:

Most investors are familiar with the concept of total return when we talk about buying stocks.  You expect dividend income but you also hope your principle will increase over time.   When you buy a bond at par and hold it to maturity, you will get back par.   Your total return is only the value of the interest payments.   

If you buy a bond that costs more than par and hold it to maturity, your return is even less than the value of the interest payments because you will get back only par which would be less than you paid.    You can see why I never buy bonds at a price greater than par.

If you buy a bond at a discount and hold it to maturity, your return is a combination of the interest payments and the increased value of your principle.  You get the capital gain difference between the discounted price you paid and par.   Sometimes, (and this happens more than you may think) the value of your bond increases enough that you can sell it at greater than par.  In circumstances of that type, your return includes the interest received while you held the bond and the capital gain.

Interest coverage ratio:

If you have not yet familiarized yourself with “interest rate coverage ratio,” you should do so now.   Interest coverage ratio is simple to find.   I use MSN Money to find this the interest coverage ratio of the company that has issued the bond.  Interest coverage ratio is a measure of how well a company can pay its interest payments.    Later in this post, I have provided a link to the MSN site.

Alcoa Aluminum Company – April 15, 2021 bond

Alcoa, symbol AA, is a dividend stock but their bonds are a more compelling investment.  AA issues bonds periodically and the bond I bought today (June 24, 2013) matures on April 15, 2021; this is just under eight years until maturity. 

This bond pays a coupon yield of 5.4%.  It sells at a discount; I paid $96.291.  At this price, the yield is about 6%.   In addition, if I hold the bond to maturity I will get back my principle plus $3.709.   

This bond is rated BBB-.   I put very little faith in the rating agencies; I do my own homework and I like to use the interest coverage ratio of the underlying company to determine if that company will be able to pay the interest and return to me the principle.   In the case of this bond, the interest coverage ratio of AA is 36.59.  This means the company has a good chance of paying interest to the tune of 36.59  times what they need to cover the interest payout.  This is an excellent margin for this company and makes the bond compelling to me.   If you want to see the data on MSN click here for the link.

AA 4/15/2021 5.4%
CUSIP 013817AV3
               $    100.000
               $      96.291
Coupon Yield
Yield to Maturity
AA D/E ratio
AA Interest Coverage Ratio

You need to know the CUSIP of the bond in order to buy it.   Many brokers, I use Schwab, will have these bonds in their inventory.   If you do not see this bond on your broker’s website, call their bond desk and ask for a price using the CUSIP.   See the table at right for this bond’s details.


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