These are strange times.  I had more than 20 calls on 20 stocks expire on Friday.  Today I searched each and every name where I am above my cost basis.  I was looking for extra call income.

During the past few weeks I added little bits of MSFT for a basis of $140.  On those shares I am barely even as MSFT is trading in the mid $134.   However, I found an extraordinary call that I sold today.

	Price on Open	Call Expiration
MSFT	$133.83	6/19/2020
Cost Basis:	March	$140.00
Strike Price:		$155.00
Call Premium:		$7.07
Dividend	5/20/2020	$0.510
Call Yield on Basis		5.05%
Call + Dividend Yield on Basis		5.41%
$ Gain if Assigned		$22.58
Max Return  if Assigned		16.13%

If my shares are called away, I benefit to the tune of over 16%.  If MSFT stock price soars and I lose it before the dividend date, that is o.k. by me.  If it rumbles along at the current price level, I will probably not lose it and will capture the dividend.  I am fine being long MSFT but I am also fine having this lot called away when I get the unbelievable premium of $7.07 per share.

The premium on this call is equal to over 13 quarterly dividend payments.  As an income investor I have to do this.

Analyst moves MSFT

M* MoneyMadam
Disclosure;  Long MSFT with calls on part of the position.

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Buy high and sell higher - my way of nibbling MSFT

Thursday, February 27, 2020

All investors have to use opportunities to build their portfolios.  Always keeping your emergency fund of one year's expenses in cash/money market equivalents is important.  But I nibble.

Today I am adding again.  In the pre-market MSFT traded in the low $160's.   I added a little. Nibbling and building the position for the future.  Skate to where the puck will be not where it is.

M* MoneyMadam




I lost all but 100 shares of Microsoft to call buyers.  My shares were assigned and assigned early.  I bought October 22, 2019 at $138.  December 2, 2019 I sold calls with a strike  price of $160, expiration date of 2/21 for a premium of $1.88.   MSFT was ex-dividend on 11/20.   The end result is I received the dividend of $.51 per share + the premium.  My shares were assigned on 2/18/20.

Actual result of this MSFT trade:

MSFT	Call sold on 12/2/19	2/21/2020
Cost Basis:	10/22/2019	$138.00
Strike Price:		$160.00
Call Premium:		$1.88
Dividend	Ex-Div 11/20/19	$0.510
Call Yield on Basis		1.36%
Call + Dividend Yield on Basis		1.73%
$ Gain if Assigned		$24.39
Call Assigned on 2/18/2020		17.67%

Microsoft's stock price increased significantly and I looked like an idiot for picking such a low strike price.  Who knew?  The call buyer knew and bought these shares at $160 on the day that MSFT traded as high as $187.70.  We all benefited I got my over 17% gain and the call buyer, if they sold those shares immediately received a net gain of 15.95%.   A win win for all.


Buy high and sell higher

My next MSFT trade was to buy at $161 per share on 1/9/2020.  I bought higher than the strike of the previous call.  Getting nervous about the price and P/E ratio of MSFT, I didn't want to commit for so long.  As soon as I bought MSFT on 1/9, I sold a $170 call to expire on 3/20/20.  I will get the dividend on this trade.  I still own those shares.

Here is how that call looked when executed.

		Call Expiration
MSFT	Call sold on 1/9/20	3/20/2020
Cost Basis:	1/9/2020	$161.00
Strike Price:		$170.00
Call Premium:		$2.23
Dividend	Ex-Div 2/19/20	$0.510
Call Yield on Basis		1.39%
Call + Dividend Yield on Basis		1.70%
$ Gain if Assigned		$11.74
Max Return if Assigned		7.29%

Today I bought even higher.   Microsoft soared to $190.70 on 2/11/20 but during this recent market adjustment, MSFT has reverted to around $170 per share.  The call buyer on the original call noted above, if they held the shares, is still in the money.  The call buyer for the second lot may or may not take my shares at $170 on or before 3/20.  We will just have to see.

Today I bought at $170.50 and sold a call that expires in 10 days on March 6, 2020.  I remain very nervous about the volatility but I have to make a living and I do that by selling calls on dividend stocks.

Here is the call I sold today:  Expiration 3/6 with a strike price of $177.50.  I received $1.75 per share in call premium.  This call is on for 10 days.

	Price on Open	Call Expiration
MSFT	$171.41	3/6/2020
Cost Basis:	2/26/2020	$170.50
Strike Price:		$177.50
Call Premium:		$1.70
Dividend	Ex div after exp	$0.000
Call Yield on Basis		1.00%
Call + Dividend Yield on Basis		1.00%
$ Gain if Assigned		$8.70
Max Return  if Assigned		5.10%

I do like MSFT and you can see the fundamentals below.

MSFT	Earnings	Dividend
Earnings > Dividend	$5.80	$2.04
Debt to Equity		0.72
Dividend Yield		1.19%
3 Yr. Rev. Growth		13.84%

It remains expensive but I believe what it sells will continue to be needed in spite of the Corona Virus.   If it goes down lower, I believe I will sell more calls and most likely eventually will have all my MSFT called away.  I rarely love a stock so much that I cannot stomach losing it.

Good luck in this volatile market.

M* MoneyMadam

Disclosure:  Long MSFT with calls

If you're considering a call use this calculator to determine your potential gain:

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

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Covered Call Activity MSFT

A call I executed today.   MSFT is a quality stock with a low yield.  I use covered calls to make up the difference between what MSFT yields and what I need.

M* MoneyMadam
Disclosure:  Long MSFT with covered calls

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Two calls in a down market while I nibble

One problem of selling calls on quality stocks is that when they are called away at your strike price, quite often their stock prices continues to go up and you lose that opportunity.

The other problem with selling calls on even quality stocks is that you are stuck with the stock until the expiration even if the stock price is sinking.

Our current market makes clear the second risk preempts the first.  Readers know I work my portfolio with calls.  Often times I am in and out of stocks once of two a year.  I am unafraid of each risk noted above because I try to pick quality stocks.   

I added a small amount of two quality stocks today and immediately sold calls on them.  One stock carries a low dividend yield but all other Dividend Machine fundamentals are in order.  The other stock carries a high dividend yield and has a little more debt than I like, but I believe it is a quality stock that will continue to pay their big yield.

I like to get a minimum of 10% total return; capital gain, call premium, and dividend; when I buy a few more shares and sell a call for no other reason than to reap income.  Here are my two trades today.

Microsoft, symbol MSFT

Dividend fundamentals include earnings of $4.50 are greater than dividend of $1.84 and debt to equity ratio of .77.  Negative is low yield of  1.47%

IBM, symbol IBM

Dividend fundamentals include earnings of $9.50 are greater than dividend of $6.48.  Debt to equity ratio is 3.03 and that is a negative but it is offset by a dividend yield of 5.01% with plenty of cash flow to pay it. 

Nibbling for income.   Disclosure:  Long MSFT and IBM with calls

M* MoneyMadam

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MSFT - Dividend Machine

Good news on this 2012 Dividend Machine:  http://247wallst.com/technology-3/2016/09/21/microsoft-announces-dividend-hike-more-share-buybacks/

M* MoneyMadam

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Which tech stock to add MSFT, QCOM, or AAPL?

The market has turned volatile and that means the VIX is up.  When the VIX is up, covered calls are more plentiful.   In this post I look at three stocks in the technology sector:  Microsoft (MSFT), Qualcomm (QCOM) and Apple (AAPL) that are under consideration as income stocks.   During times of volatility, opportunities are created. 

While each of these stocks is considered a technology stock, they are quite difference in many ways.  Without analyzing the similarities or differences in focus, strategy, or execution, I will apply my screening criteria to each one to decide if I should add to my position in the case of MSFT and AAPL and if I should again take a position in QCOM. 

MONEY MADAM SCREENING CRITERIA FOR INCOME

Target Dividend Yield = 2.75%

To remind you, I write about income stocks.  I am looking for solid companies with a strong history of delivering ever increasing income through dividends and covered calls.  My target dividend yield is 2.75% but I will compromise if there is a catalyst such as hefty call premiums or significant revenue growth that could suggest big capital gains down the road.

Dividend Growth = 4% minimum

The most useless data out there is inflation data.  If you believe the so called experts, some suggest deflation and some suggest a hint of inflation.  I look back at my expenses 10 years ago and 20 years ago and I can tell you that my expenses doubled about every 20 years.   Therefore,  in 20 years I must plan to produce twice the income I get now to cover my expenses.   Using a 4% dividend growth rate will get that done.

Covered Calls = 10% total return if the call is exercised

When I sell calls on my stocks to create income, I risk losing that stock to the call buyer and it happens quite often.  I would say more often than the conventional wisdom of 10% of the time.  Should my stock be called away this means I lose the chance for future capital gain in that holding.  Therefore, I must be sure that my total return makes it worth while.

My target total return on a stock that is called away is 10%.  I rarely sell a call with an expiration longer than 90 days and I almost always pick an expiration date that is far enough out that I receive the dividend (unless the stock is called away early.)  I also prefer the call premium to be equal to or greater than 1% of my basis.

MONEY MADAM SCREENING CRITERIA FOR SAFETY

The only way I will achieve my income goals using dividend stocks is if those stocks continue to grow.  My crystal ball is in the shop and I must, therefore, use historical data to help me predict future income streams.  Revenues and Earnings per share (EPS) create the cash needed to deliver ever increasing dividends.

Target Revenue Growth = 4% minimum
EPS must exceed dividend paid out

Safety for me is not measured by stock price volatility.  I am interested in total return but I have been in this business long enough to know that my stocks could tank like they did in 2009 but as long as they continue to pay the dividend, I will not suffer greatly.  Moreover, I should not have to worry about my stock going "belly up" if I choose a stock with a strong balance sheet.

Debt to equity ratio (D/E) of 1 or less or = industry standard

I use D/E ratio but I if you are adept at reading a balance sheet, you may use another criteria to make you feel comfortable with a company's balance sheet.

The table below presents this data on all three stocks.



The choice to initiate a position or add to a position is solely yours.  I will be adding Qualcomm to the 2016 Model Portfolio as it meets all my criteria including nearly a 1% call premium.  And I will add to my AAPL position on a pull back because the call premium is very robust and makes up for the low dividend yield.  Finally, I will hold MSFT for now.

Consider these three stocks for the income producing portion of your portfolio.

M* MONEY MADAM

Disclosure:  Long AAPL with calls, Long MSFT, with calls, expect to initiate a position in QCOM shortly.

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