Showing posts with label BBY. Show all posts
Showing posts with label BBY. Show all posts

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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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 Schwab.com and Marketxls

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