Showing posts with label SWKS. Show all posts
Showing posts with label SWKS. Show all posts

Wednesday, January 29, 2020

SWKS call potential

Friday, January 31, the final two calls from January expire. I make a living off of selling covered calls on mostly dividend stocks.  In January I had 33 calls on eighteen different stocks expire.

Those calls were sold as long ago as 87 days and recently as 2 weeks.

One of the two calls left is Skyworks, symbol SWKS a 1.5% dividend yielding stock.  My expiration is $119 and my basis on this lot is $110.80.  I received a premium of $1.90. SWKS closed at $117.80 today so I am in the money but below the strike price.  SWKS is volatile enough that I do not know what will happen on Friday.


How would selling a call on SWKS look today.  When it closed on 1/29/20 I looked at calls and here is what I found.  A strike price of $130 well above yesterday's basis; a call premium of $1.20 close to what I want and an expiration date after the next ex-dividend date.

Stock Price on Open Call Expiration 
SWKS $114.94 3/20/2020
Cost Basis:   1/29/2020 $117.89
Strike Price: $130.00
Call Premium:  $1.20
Dividend  2/10/2020 $0.440
Call Yield on Basis 1.02%
Call + Dividend Yield on Basis 1.39%
$ Gain if Assigned $13.75
Max Return  if Assigned 11.66%


In order to determine how to proceed today, I have included an interactive tool. You can enter your data and determine how your trade might work out.  I have put in the data that I used today to decide if I should add SWKS and sell another call.  You can enter your own data and determine if the trade is for you.


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
This tool may not work with all browsers.  You can use the calculator that is  in my call options page.  http://www.themoneymadam.com/p/covered-call-calculator_01.html

The example below uses  closing price on both the common stock and on the option on 1/29/20.  Skyworks is ex-dividend 2/10/20 so I would select an expiration date after the ex-dividend date. I like to get at least 1% on my capital from the call premium when I am initiating a new position.  I want at least $1.20 in call premium income.

Strike price is of course important.  When I have an established position, I am more careful about making sure the strike price provides significant capital gains. But with a new position on a stock that is only yielding 1.47%, I can live with bagging only a 5% capital gain should this lot of SWKS be called away.


Every income investor who has to depend on their investments to create the major portion of their income stream should make an effort to learn how to sell covered calls.

I reinforce the need for research.  You want to sell calls on solid stocks that have enough of a catalyst to deliver growth and potential call income.

M* MoneyMadam
Disclosure:  Long SWKS with calls
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Monday, January 27, 2020

Betweem 8.84% and 16.61% return in fewer than 60 days

Giddy - up:   Buying into weakness on four stocks with surprisingly good calls.

Below you will see four covered call tables illustrating the calls I made today on:

NVDA, DOW, SWKS and LVS.












This is good income investing in a down market.  Don't put all you eggs in these baskets.  But, nibbling when you can get good call premiums is worth the risk.

M* MoneyMadam

Long NVDA SWKS DOW LVS with calls





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Monday, August 12, 2019

A case for Selling Calls for the Income Investor

Call income seems to accompany dividends as the best income tools for August.  Bond interest is so low and quality dividend stocks are so expensive.  Therefore, I sell covered calls on existing positions hoping I do not lose too much opportunity by having my stocks called away.

August is a pretty typical month for call expirations.  History tells us 90 percent of calls expire without action and 10 percent are assigned.   In the table below, I have 18 calls with August expiration dates.

As of today, I have 4 in the money which means the current stock price is above the strike price and 14 out of the money where the current stock price is below the strike price of the call. See the table below.



Only one of these stocks does not pay a dividend and that is YELP.  When I realized YELP was not going to perform quickly, I sold a call very close to the current price and my basis and am hoping it is called away which means the call buyer not only paid me a premium for the option but will also pay me the strike price.  That makes me even on the stock and the call premium in my pocket.

Three other stocks have low dividend yields, MSFT, NVDA and SWKS.  I consider a yield low if it is below the 2 year U.S. Treasury yield so SWKS with a yield of 1.99% may not be considered a low yield stock for some.

I like MSFT but with such a low dividend, as an income investor, I am willing to lose part of my position to the call buyer.  I am underwater on NVDA and will hope the China situation improves at some point.  I will continue to sell calls that are close to my basis so that I can unload NVDA in a similar fashion to YELP.

FOUR IN THE MONEY CALLS

The four income money calls are:   MSFT $135, WDC (Western Digital Corp.) $52.50, CVS $57.50, and YELP $34.   Expiration dates are August 16, 2019 except where noted.  My reasons for risking losing these stocks to the call buyer are:

  • MSFT - yield is too low
  • WDC - yield is good but not growing, EPS are less then dividend paid out but growing
  • CVS - (August 23 expiration)stock price is weak, I added to my shares that are underwater, and sold calls against the low buys
  • YELP - no dividend and stock price is not performing as hoped 

The downside of selling covered calls is two fold. one is lost opportunity.  The call buyer was right to pay you the money for the option to buy, they execute the call and then the stock soars and you miss out on the growth.    If you always look back and are cannot afford to lose a favorite stock, don't sell calls against your beloved stock.

The second risk is your shares are on call, the stock price tanks, you would like to get rid of the stock but cannot unless you pay money to buy back the call.   This risk is untenable for an income investor.  We don't pay out, we deposit funds.  The moral is to pick the underlying stock carefully.

FOURTEEN CALLS OUT OF THE MONEY

The 14 out of the money calls are listed below.  Each stock pays a decent dividend and I am willing to keep them.  I am hoping for additional volatility that may allow additional call selling.  But I am not in such a hurry to lose these stocks so I pick strike prices that I think are harder for the stock to attain before the call expires.  Expiration dates are 8/16/2019 except where noted.

  • MSFT - $145 low yield but upside potential for this very well run company 52 week high $141.68
  • COP - $67.50 nice dividend increases of 7+% recently  
  • LVS - $62, $65, $67.50 High yield with enough volatility that strike prices well above my basis are available.
  • M - $23 High yield with an improving balance sheet and very low P/E (price earnings ratio)
  • WSO - $180 Nice yield, with good fundamentals, headline risk due to global exposure provides strike prices well above my basis
  • SWKS - $82.50, $85 Decent yield, good balance sheet, nice volatility, I have been able to sell calls two - three times per year
  • WMT- $115 Walmart does not raise the dividend much and the yield is mediocre, strike prices near the 52 week high of $115.42 pay enough premium to make WMT a hold.
  • WDC - $55 High yield and improving fundamentals
  • SWKS- $81 (August 23 expiration) Decent yield but enough volatility to enjoy call premiums more than once a year
  • RDS.A - $63.50 (August 23 expiration) Very Good Yield, calls available only about once a year and I sell calls on only part of my position always above my basis and hopefully pick a strike price high enough that I am not called away.
  • NVDA- $185 (August 30 expiration) my worst performing stock of the group.  Not enough dividend to care if it is called away.   
In my case 22.22% of the calls are likely to be exercised versus the historical average of 10% but we still have to see what happens the rest of August.  This post illustrates how conservative income investors can use call options to boost their income during a time when quality dividend stocks are expensive and quality bonds are outrageously expensive.

M* MoneyMadam



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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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Wednesday, April 17, 2019

Skyworks selling call on 5G innovation potential


(Graphic: Business Wire) 
 

Chip stock prices have improved lately and today some are really soaring based on Qualcomm news. I am not looking at Qualcomm, I am looking at Skyworks.   Although it is an "analog" chip company, you can learn more about its innovation and plan for working on the upcoming 5G networks, here:   http://investors.skyworksinc.com/news-releases/news-release-details/skyworks-releases-5g-technology-paper


I follow and write about SWKS often because it pays a dividend, and has a P/E price earnings ratio of 14.5 which makes it look like a bargain.  Qualcomm carries a P/E ratio of 36.56.   And, as my readers know, I love a stock that also has call option potential.   SWKS fits all the criteria.

SWKS Fundamentals:


Here are the fundamentals of SWKS.   You can review the dividend stock selection criteria I have used for my portfolios here:  http://www.themoneymadam.com/p/dividend-stock-criteria.html







SWKS Covered Cal:


I bought some more SWKS today but hedged my bet by selling a call with an expiration date that captures the dividend, I hope.  SWKS has not release the next ex-dividend.  Last year in May the ex-dividend date was May 25 which is after the monthly call expiration date of May 17.  However, in previous years the ex-dividend date in May has been earlier and you might consider a call with a May 17  expiration date rather than the May 31 expiration that I chose.





Be aware this stock can be volatile, but you do get paid to wait.   It could exceed the strike price before the expected ex-dividend date making your shares vulnerable to be called away.  You always get to keep your call premium.  If you are called away and only get the capital gain (difference between your basis and the call strike price or $8.20) plus your premium of $1.05, your gain falls to 10.07% below the 10.49% you would get should the shares be called away.

Most likely, however, you will keep your shares with a basis of $91.80.  Remember 90% of options expire without action.   With the full year's dividend of $1.52 and this call premium of $1.05, your income from SWKS for the next year would be 2.799% which is better than a short term treasury.   Of course with a short term treasury note or bond, you principal is safe.  Whereas, Skyworks' value could go down below your basis.

Since earnings and revenue growth are solid and Skyworks has no debt and Skyworks is in the thick of the next 5G generation,  I feel this is a risk worth taking.  Moreover, I may be able to sell more calls over the year boosting my income.

M* MoneyMadam

Disclosure:  Long SWKS with calls
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