Showing posts with label Nvidia. Show all posts
Showing posts with label Nvidia. Show all posts

Monday, October 21, 2019

NVDA and AVGO two calls with different purposes

We income investors are struggling to keep the cash flow up.   Quality dividend stocks are expensive and value stocks have value for reasons that make ordinary investors nervous.

  • No commissions help  you be more creative to work call option income
  • Know your income goals and be flexible with strike prices and expiration dates
  • Stick with stocks that have good fundamentals but don't eliminate a stock just because it is not perfect

We have to employ our cash to earn income and hold our noses when all the numbers are not perfect.

Below are two calls, both executed today.  They are designed to deliver income yet each is quite different from the other.  One call expires in 12 days and the other call in 89 days.

AVGO - Broadcom


I own Broadcom and sell calls as often as I can.  Broadcom is not perfect.  The D/E (debt to equity ratio) is higher than other chip stocks such as Intel.  AVGO D/E = 1.75 whereas INTC carries a D/E of only .38 and Skyworks (SWKS) has no debt.

Moreover, AVGO has earnings per share slightly less than the dividend payout.  However, their cash flow per share is more than double their dividend.  EPS = $7.42, Cash Flow = $23.39 with dividend payout of $ 10.60.

I am putting more money to work in Broadcom and selling a call designed to deliver at least 10% in capital gain should the call be assigned (the call buyer actually buys my shares at the strike price.)  Another goal for this call is to received call premium greater than the quarter dividend.  Finally, I picked a strike price that captures the dividend provided the call buyer does not take my shares before the ex-dividend date.

One of the biggest benefits from owning Broadcom is the prodigious dividend growth.  Over the past 3 years the quarterly dividend increased from $ .51 to $2.65.   When you realize that your expenses will double in 20 years and if you expect to live for 20 more years,  you need your income to grow.  Broadcom, in my opinion is worth the risk.

See the two tables below:


AVGO Dividend Machine Fundamentals










AVGO January Covered Call Option


















NVDA - Nvidia


I also own Nvidia and I added a little today.  With this stock I am looking to cash a nice check quickly.   I have less interest in holding NVDA for the long haul because the dividend is low and their dividend increases are adequate but nothing like AVGO.

I am risking new capital but for only 12 days.  I picked a call that will deliver more in the premium than I can get in dividends when holding the stock for an entire year.   The risk is that NVDA is very volatile (52 weeks price range is between $124.46 and $235.32;  this means NVDA could be worth less than what I paid in just 12 days.




I picked a strike price that is very close to my cost  basis.   I get a little gain and I get to pocket a juicy call premium.  And the entire commitment is only 12 days.

Risk is an interesting issue.  Look at NVDA's fundamentals below and you can see that the share price may be volatile and prone to headline news and trade tweets, but NVDA has a solid balance sheet and cash flow that far exceeds dividend paid out.  I think 12 days of risk is ok.  Let's see what happens.

See the two tables below:


NVDA Dividend Machine Fundamentals










NVDA November Covered Call Option



















It is not easy to work your portfolio in this stock market environment.  No commissions helps me be more creative.  Know what your goals are so when you do execute your trades, you are confident your income goals can be realized.   When your proceeds are not eroded by costs, you can do a little more active call selling.

M* MoneyMadam

Disclosure:  Long NVDA and AVGO with calls
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Friday, April 26, 2019

SWKS and NVDA taking advantage of chip weakness

My weakness is chips; potato chips.  I also like the chip space but I hate overpaying.  While Skyworks is not exactly a dividend machine because the yield is low, it has beta (volatility) which means I can take a chance with a covered call and if my new shares are not called away by the call buyer, I am getting paid nearly 2% to wait.  And this stock has no debt.

Take a look at a transaction I made today.  I added to SWKS and immediately sold this call.









Price on Open
Call Expiration


swks
$86.82
6/21/2019


Cost Basis: 
Price on Option Contract Open
$86.82


Strike Price:

$92.50


Call Premium:

$2.20


Dividend
Ex Div Expected mid May
$0.380






Call Yield on Basis

2.53%


Call + Dividend Yield on Basis

2.97%


$ Gain if Assigned

$8.26


Max Return  if Assigned

9.51%







I like a greater than 1% yield from the call premium and this call meets that hurdle.  Moreover, if my shares are called away, I get a total return of over 9% in a very short time period.

Now here is another call I sold today.   For the higher risk investor but in the same industry.


























My kind of income investing.

M* MoneyMadam
Disclosure:  Long SWKS and NVDA  with calls
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Monday, February 11, 2019

Nvidia very short term call for income

Nvidia, symbol NVDA is not exactly a dividend machine but it does pay a dividend.  Yet, in this trade today, the dividend is irrelevant as the call expiration is 4 days.  Nvidia's next expected ex-dividend date is later in February.  The point of this call is simply quick income.

I don't really want to own NVDA as a long term holding.  I am hoping to make a quick 2 percent of income in 4 days and bag a small capital gain should NVDA be called away.  If it is not called away I will sell it right away provided it is at or above my cost basis less the income from the call.  The adjusted cost basis in this case would be $146.09 less the income from the premium of $3.00 or $143.09. 

If it is above my cost basis, I will probably continue looking for short term calls until NVDA is called away.   I have done this before with NVDA.  This is not a conservative investor's trade.  It is controlled risk to boost income. 



Nvidia's Fundamentals:




NVDA has good enough fundamentals that I am not too worried about it going belly up.  However, it is extremely volatile and could sink to the 52 week low or go lower on some catalyst that I do not know about.

Short Term Call:

Call prices vary all day long.  You may not be able to get this trade tomorrow and I could not get this published before the market closed.  Yet, you may be able to do even better.  It all depends on the call buyers.





Pressure is being placed on corporations to not pay out dividends.  We income investors are already suffering from having no safe place to earn income and with dividend payouts pressured, covered calls become even more important.

If you have cash to put work, consider a trade like this.

M* MoneyMadam
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Tuesday, July 11, 2017

Nvidia an Income Investor's dream

Nvidia gf4mx440 se
Nvidia gf4mx440 se (Photo credit: Wikipedia)
Chips go up, chips go down, chip sales rotate around and I am not talking Cape Cod  Potato Chips.

INTC is good dividend producer much better than NVDA.   INTC's yield is 3.22 and NVDA's yield is only .38%. 

Nvidia is beating them on momentum and therefore on covered call income opportunity and this is good for income investors.  Take a look at three calls I considered today.


38 days away - August 18 $180






This call does not capture the dividend which we expect to be $.14 with an  expected ex-dividend date of 8/23/2017.  Who needs the dividend when the call premium yields us a quick 2%.  But wait it gets better.

66 days away - September 15 $180





This call does capture the dividend but even more significant is the call premium yield of almost 3%.   Total return is 1% better than the shorter duration call.  Will going out further increase the return even more?  Let's see.

101 days away - October 20 $180

 



Now we are making some serious income with the call yield nearly 4%.  However, even with that yield, and the captured dividend, the total return is again just 1% greater than the September expiration date and 2% greater than the August expiration date.

It is significant to note call volumes of these specific calls on Schwab.com are less than they were yesterday.   This can make the premium variable.  You never know until you put in the trade.

Which trade is the right one for you?  My decision is based on the fact I could get really hurt if NVDA plunges.   Intel is a much safer play.   AMD sells chips that are competitive with NVDA's but they do not pay a dividend so that stock is out of the question for me.

I introduced each of these calls with the duration of time to expiration because that makes a difference.   The difference in covered call terms is called the "time value of money."  For me the difference is the risk of being under contract and not able to dump NVDA if it gets crushed.

I am taking the shortest duration, the August 18, 2017 $180.   I find the total return of 18.90 percent compelling if NVDA is taken.  If I still hold my shares after the call expires, I have the choice of selling it or writing another call.   I will still be nervous the whole time but as an income investor, I really like this trade.

M*MoneyMadam
Disclosure:  Long NVDA with calls

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